EUR/USD heading for the support at 1.05 now

EUR/USD on A Steady Decline Despite Hawkish ECB

Posted Monday, May 29, 2023 by
Skerdian Meta • 2 min read

EUR/USD failed to break above 1.11 three weeks ago and reversed lower. Since then sellers have been in total control and last week this pair had another challenging week, experiencing steady losses against the US Dollar, and the 20 SMA (gray) shown on the H4 chart above. This moving average has been acting as resistance at the top, stopping all retraced higher, indicating that the pace of the decline is quite strong.

Throughout the week, ECB members maintained a hawkish stance in their statements. Although, we saw no significant support for the Euro. But, the market has already priced in the ECB remaining hawkish, considering it the most hawkish central bank going forward, although other major central banks such as the BOE and the FED are contemplating another hike at least. As a result, a substantial change would be required for buyers to return, because markets are more concentrated on the USD at the moment.

Meanwhile, the Buck continued its rally as a solution regarding the US debt ceiling remained elusive. US Treasury Secretary Janet Yellen adjusted the estimated date when the US could potentially default, pushing it to June 5 instead of June 1. While the revised date buys negotiators more time, the prolonged uncertainty surrounding the debt ceiling issue may lead to increased market volatility.

Last Friday, the US core PCE price inflation data surpassed expectations, providing further support for the USD. This resulted in a hawkish revision to the probability of another Federal Reserve (FED) hike in June. Currently, markets are pricing in a 71% chance of a 25 bps hike by the FED next month, up from 17% just a week ago.

This week we have the flash Consumer Price Index (CPI) from the Eurozone, which is expected to be of particular importance. However, we don’t anticipate any significant change in the outlook for the Euro unless there is a huge miss from expectations, which isn’t likely.

The dominating theme for this week will likely be the narrative surrounding the US dollar and the ongoing discussions on the debt ceiling once again. Additionally, the NFP jobs report, scheduled for release on Friday, will be of significant interest, especially in light of the strong Personal Consumption Expenditures (PCE) data.

EUR/USD Live Chart

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