The First Test Comes at 1.07 for EUR/USD Bulls
EUR/USD has been bearish since reversing above 1.12 in July after filing to break above the 200 weekly SMA. The price fell below 1.05 early this month but has been rebounding since then, although buyers are facing the 100 SMA on the weekly chart now, which is the first real test for them.
Following a recent fall, EUR/USD has been gaining ground this month, moving above 1.07 this week, although the price closed the week around 1.0670. Last week we saw some strong bullish momentum in this pair after some soft economic data from the US and some dovish comments at the FOMC meeting. But, the USD started recovering this week and EUR/USD retreated below 1.07 as a result of US Federal Reserve Chair Jerome Powell’s hawkish remarks at an International Monetary Fund (IMF) panel discussion on Thursday.
Chair Powell’s admission of the inadequacy of present efforts to combat inflation indicates the possibility of more rate hikes. As a result, US Treasury rates increased significantly on Thursday, with the 10-year US bond rates reaching a daily high of 4.65%, helping to strengthen the US Dollar (USD). Following these events, the US Dollar Index (DEX) approached the critical 106.00 mark, while this pair retreated from the 100 weekly SMA (green) which is now acting as resistance in this timeframe.
ECB’s Lagarde said yesterday that rate cuts not coming for at least “the next couple of quarters. But, Markets and European Central Bank President Christine Lagarde are at odds. The rates market is now pricing in a 68% possibility of an ECB rate cut in April next year, as well as a certainty of one in June (and two in September). Meanwhile, Lagarde told the Financial Times today that if interest rates remain at the present 4% level for a long enough period of time, inflation may fall to 2%.
It does not imply that we will see a shift in the next couple of quarters. “‘Long enough’ must be long enough,” she explained. The early theme of trade in several currencies in 2024 will be market pricing of rate decreases vs central banks attempting to keep rates higher for longer but the history of this type of struggle demonstrates that central bankers often fold earlier than promised.
EUR/USD Live Chart
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