During the Asian trading session on Friday, the EUR/USD currency pair displayed constrained activity, pausing its slight retreat from the high vicinity of 1.0900, a peak not seen since August 31. The pair fluctuates within a tight range, hovering around the mid-1.0800s, remaining largely unchanged as market participants await clearer indications of the Federal Reserve’s (Fed) future policy direction before committing to new market positions.
Recent developments, including a subdued U.S. Consumer Price Index (CPI) and a downturn in Crude Oil prices, have fueled hopes for reduced inflation, potentially aligning the Fed more closely with its 2% inflation goal.
Additionally, a significant uptick in U.S. Initial Jobless Claims suggests a slowing labor market, reinforcing the notion that the Fed may refrain from further interest rate hikes. Consequently, yields on the benchmark 10-year U.S. government bonds dipped to a near two-month low on Thursday, weakening the U.S. Dollar (USD) and thus providing support to the EUR/USD pair.
However, the prevailing cautious sentiment in equity markets is curbing declines in the USD, viewed as a safe-haven asset. Furthermore, anticipations of potential rate cuts by the European Central Bank (ECB) in March 2024 are making traders hesitant to make aggressive bullish bets on the Euro, thereby limiting the pair’s gains.
Therefore, it seems judicious to await substantial follow-through buying before predicting a continuation of this week’s significant rally, which surpassed the confluence of the 100- and 200-day Simple Moving Averages (SMA) near the 1.0800 level.
Market focus now shifts to the final Eurozone CPI report for further direction, followed by U.S. housing market data – Building Permits and Housing Starts – scheduled for release in the early North American session. Additionally, remarks from key Federal Open Market Committee (FOMC) members, along with U.S. bond yields and broader market sentiment, will influence USD demand and offer short-term trading opportunities in the EUR/USD pair. Despite these factors, the pair is poised to record substantial weekly gains, with its trajectory largely dependent on the dynamics of the USD.
EUR/USD Technical Outlook
Yesterday, the EUR/USD pair closed below the 1.0860 level, tempering the positive momentum seen in recent sessions and maintaining a bearish outlook for the day. This trend aims to test the 1.0760 level as the next significant target.
The Stochastic oscillator is sending negative signals, bolstering the likelihood of a continued bearish trend. However, a breach above 1.0860 could trigger a bullish correction, potentially leading the pair towards the 1.0960 area.
Today’s expected trading range lies between the 1.0760 support level and the 1.0920 resistance level, with the overall trend for the day anticipated to be bearish.