The price of the EUR/USD currency pair is still trying to rebound higher, but its gains did not exceed the resistance level of 1.0620. It still needs more stimulus to exit the broader downward trend. As markets wait anxiously to see how far the latest conflict between Israel and Hamas will escalate, US Federal Reserve policymakers offered some soothing words to jittery investors already caught in the wrong position by the recent rise in yields.
Speaking on Monday, both Fed Vice Chairman Philip Jefferson and Dallas Fed President Lori Logan also noted that the Fed's recent tightening of financial conditions amounts to an additional rise in US interest rates. The safe-haven US dollar and Japanese yen were weaker on Tuesday. The euro rose above $1.06 even as European Central Bank policymakers signaled interest rates have likely peaked, while sterling rose above $1.2250 ahead of the UK's monthly GDP readings on Thursday.
Overall, with more speakers from the US Federal Reserve lined up to speak this week, including Waller and Kashkari today, and the US September CPI report scheduled for release on Thursday, the optimistic mood will be subject to several tests. The persistent rise in long-term borrowing costs since the summer has extended the reach of bond markets into equity markets, stifling risk appetite.
But with the next FOMC decision just three weeks away, the Fed is assessing financial conditions amid a lack of clear signals from economic data. The first evidence of the potential policy shift came last Thursday when San Francisco Fed President Mary Daly suggested that financial markets had “done the work” in the Fed’s favor, with the 10-year Treasury yield rising by about 40 basis points since its September meeting. The beginning of the crisis. While this assessment would not be correct if Treasury yields reversed sharply, what is becoming more certain is that the US Federal Reserve is inclined to wait until at least December before deliberating on the need for an eventual rate hike.
For markets, the less-than-hawkish comments on the back of Friday's very strong US jobs report could not have come at a better time as stocks have been hurt in recent weeks by the oft-repeated 'go higher for longer' message.
Technical analysis of the EUR/USD pair:
- The EUR/USD pair has formed lower highs associated with a downtrend line that has been holding since early August.
- The price is testing this resistance area which may keep gains under control again.
- Fibonacci retracement tool shows that this trend line coincides with the 100 SMA dynamic inflection point and the 50% Fibonacci level near the key psychological mark of 1.0600.
- The higher pullback could still reach the 61.8% level at 1.0635, which could be the dividing line for a bearish pullback.
The 100 SMA is below the 200 SMA to indicate that the overall trend remains bearish or that selling is likely to resume rather than reverse. The price is also trading below both moving averages, so they may continue to hold as dynamic resistance. The stochastic appears to be moving lower to confirm the bearish momentum, and the oscillator has plenty of room to fall before it reflects oversold levels. However, the RSI has room to head higher, so the correction may continue until the oscillator indicates exhaustion among buyers.
There is not much stimulus from the Eurozone, so EUR/USD may simply take cues from US economic data led by US inflation numbers, Federal Reserve meeting minutes and overall market sentiment.
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