As ECB speakers take the spotlight, a hawkish Fed stance might keep the EUR base rate under pressure. Bears eye critical support levels, with 1.05 potentially on the horizon.
Fundamental Overview of Euro
The euro started the week on a relatively flat note, with the focus shifting to significant data releases for both the euro area and the US. Today’s trading day might be subdued due to a lack of high-impact economic data. However, ECB speakers are expected to inject volatility into EUR crosses.
The primary attention for the week revolves around the euro area CPI report, where another decline could exert downward pressure on the EUR. PMI figures for the eurozone and Germany are projected to remain weak, but Fitch’s recent announcement affirming Germany’s AAA credit rating provides a positive outlook for the eurozone’s largest economy.
On the US front, the Fed’s interest rate decision is the pivotal risk event. Though a rate hold is anticipated, markets will keenly await Fed Chair Jerome Powell’s remarks. The meeting is likely to emphasize data dependency, leaving room for additional hikes if circumstances dictate.
EUR/USD Technical Analysis
The daily EUR/USD chart shows bears being rejected once more at channel support, aligning with the 1.0635 swing low. Another retest might weaken this support zone, potentially pushing the pair lower. Given the hawkish Fed stance and lower EZ inflation, the mentioned fundamental factors could catalyze this move. Moreover, the Relative Strength Index (RSI) has yet to hit oversold territory, leaving room for additional downside, with the 1.0500 level as a potential target.
In summary, the US economy’s strength showed up as a reflection of the central bank’s pricing and guidance. This tendency will most likely persist. Besides, it might maintain the greenback’s dominance over the euro until signs of strain emerge in the US inflationary and labour landscapes.
EUR/USD Technical Outlook
Analyzing the 4-hour chart, the EUR to USD pair has settled below crucial support levels, including the 100 and 200 simple moving averages. It recently marked a multi-week low at 1.0631 and is presently consolidating losses. The 23.6% fibre retracement level could act as a minor resistance point.
On the upside, we should expect resistance near 1.0685, followed by a significant barrier at 1.0720. A key bearish trend line forms near 1.0730, converging with the 76.4% Fib retracement level, potentially providing a formidable resistance zone.
A close above 1.0735 might signal a potential uptick, targeting the 1.0765 level. Conversely, if the price dips below 1.0620, it could lead to a further decline toward 1.0550, potentially extending to 1.0500.
EUR/USD Rebounds with Eyes on FOMC Meeting
The EUR/USD forum is staging a recovery from recent losses, bouncing off the multi-month low of 1.0631 in early Asian trading. However, the US Dollar Index (DXY) maintains its strength, with a nine-week streak around 105.30, supported by robust US economic data. The major pair is currently trading near 1.0665, posting a 0.07% gain.
On Friday, the US released a positive economic report. The Empire State Manufacturing Index for August showed an improvement to 1.9 from -19. Additionally, Industrial Production rose by 0.4% MoM, surpassing expectations.
The upcoming Federal Open Market Committee (FOMC) meeting on Wednesday is a significant event for the market. While the Fed should maintain interest rates, Chair Jerome Powell’s remarks could influence USD performance.
ECB President Christine Lagarde’s recent statement that further rate cuts were not under consideration is noteworthy. The ECB’s decision to raise interest rates, while indicating it might be the last such hike, might weigh on the Euro to USD swap rates.
Looking ahead, the Eurozone’s Harmonized Index of Consumer Prices (HICP) for August and the preliminary HCOB Composite PMI for September will be closely watched. Traders will closely analyze these figures for potential trading opportunities involving the EUR base rate.
