- The EUR/USD exchange rate is heading towards a decline, and the balance of probabilities suggests another weekly loss for the exchange rate as markets begin a late start to the US Federal Reserve's interest rate cut cycle.
- As trading began this week, EUR/USD sell-offs continued with losses extending to the 1.0723 support level, the lowest in over two and a half months, and is currently stabilizing around 1.0760 at the time of writing the analysis.
According to the forex market trading, the euro fell sharply against the dollar by 0.78% last Friday after the release of stronger-than-expected US jobs figures, which wiped out bets on a US interest rate cut in March by the Federal Reserve. The sell-off on Friday extended into the new week, as the main momentum indicators are pointing down and calling for further declines.
Will the Price of the Euro Decrease in the Coming Days?
In this regard, Kwik Ser Liang, a market analyst at United Overseas Bank, says that the euro is likely to continue to weaken against the dollar in the very short term, with a move below the 1.0755 level now on the radar. The sharp decline in the euro has not stabilized since last Friday. In other words, the euro is likely to continue to weaken.” Ultimately, the UOB analyst does not rule out a break of the support at 1.0755, with the next major support near 1.0720. The analyst added, “The price action indicates that the euro price is likely to break the main support level at 1.0755 (previously at 1.0740) and head lower to another major support at 1.0720.” To maintain momentum, the euro must stay below 1.0850.”
Meanwhile, the fundamental backdrop is in favour of the US dollar, as Friday's jobs report indicates that the market has abandoned hopes of an interest rate cut in March. Commenting on this, Christopher Wong, Forex analyst at OCBC Bank, says: “The US dollar bulls continue to rise, due to the non-farm payrolls report, which was a huge success last Friday.”
According to Economic Calendar data, the US added a total of 353,000 jobs in January, with job gains seen broadly across industries, while the past two months of the Non-Farm Payrolls report saw an upward revision of +126,000. Furthermore, wages jumped to a 3-month high of +4.5% y/y versus 4.1% previously. The data conveys what the Fed was trying to say a few days before its February interest rate decision: “It is still too early to talk about US interest rate cuts”.
EUR/USD Technical Analysis and Forecast:
The EURUSD price is trending lower again, with recent highs linked to a downtrend line that has been holding since the last week of January. The price seems ready for another test of this resistance area. Technically, the 38.2% Fibonacci level at 1.0789 is located near the key psychological mark of 1.0800 while the 50% level is in line with the dynamic resistance 100 SMA at 1.0810. therefore, a larger correction may reach the 61.8% Fibonacci level at 1.0831 near the 200 SMA dynamic inflection point and trend line, and the minor psychological mark of 1.0850 may be the dividing line for the correction.
At the same time, the stochastic indicator is moving up to show that the buyers are in control and can remain in control until overbought conditions are met. Technically, the RSI still has more room to rise before reaching the overbought zone, so the correction may continue until that happens. Thus, if any of the Fibonacci levels hold as resistance, the EUR/USD could fall to lows of 1.0721 or lower. On the other hand, a break above the trend line may mark the beginning of a reversal.
Overall, there are no major catalysts from both the US and the Eurozone today, so this pair can take cues from current central bank biases and overall market sentiment. Also, risk aversion was present due to geopolitical tensions in Israel, with recent headlines highlighting the rejection of the proposed ceasefire agreement in Gaza. Moreover, concerns over the Red Sea crisis may limit Euro gains and send traders leaning towards safe havens as markets worry about the possibility of another disruption to the global supply chain.
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