On Thursday, the European Central Bank hiked interest rates for the ninth consecutive time, bringing its benchmark rates to the highest level in 23 years. The central bank noted that with the progress made in lowering inflation, a pause could be an option in the upcoming September decision. Across the Atlantic, the Federal Reserve hiked by 25 basis points and stated that another hike could be possible if inflation forces the Fed’s hand.
After reaching heights last seen in March 2022, the EURUSD currency pair has given up some of its gains, dropping 1.29% for the week, as the market found confidence in the Greenback likely avoiding a recession and also on its higher-yielding potential amid the ECB President’s openness to a dovish stance..
Technical
The EURUSD currency pair’s uptrend has been undone, following the pair’s cross below the 100-day moving average. The sharp selloff established resistance at the 1.12757 level, leading the pair towards the 61.80% Fibonacci Retracement Golden Ratio at 1.10084. Support originated the swift move higher and was established at the 1.08392 level.
Given the high volume breakdown below the Golden Ratio, downside momentum is likely taking precedence. If downside momentum persists, the 1.08392 level will probably serve as a point of interest for traders optimistic about the Greenback’s outlook.
In contrast, a reversal from the Golden Ratio could play out if demand supersedes supply. Furthermore, with the Relative Strength Index pointing to oversold conditions and declining volumes to the downside, a reversal could play out, leaving the 1.11105 swing high level probable.
Summary
Today, traders will be awaiting the highly anticipated PCE Index, the Federal Reserve’s preferred gauge of inflation, to determine if more rate hikes in the U.S. will be warranted by sticky inflation. In addition, inflation in Europe’s biggest economy, Germany, will likely drive sentiment as traders determine whether disinflationary developments validate the ECB’s potential pause. The 1.10084 level will be key to monitor as upside or downside sentiment will probably pivot off the level.
Sources: CME, Reuters, TradingView
DISCLAIMER: This report has been prepared by Fairmarkets International (“The Company”). This document is not intended as an offer, solicitation or recommendation to buy or sell financial instruments or to make any investment. The Company has used reasonable efforts to obtain information from reliable sources and the report is provided without representation or warranty of any kind (neither expressed nor implied). The Company and Fairmarkets International disclaims liability for any publication not being complete, accurate, suitable and relevant for the recipient. Specifically, the Company and Fairmarkets International disclaims liability towards any user and other recipients of this report.
