EUR/USD Dips Below the 200 Daily SMA and Rebounds but Sellers Likely to Retry Soon
Moving averages have been providing support for EUR/USD during the bullish trend in the last two months of 2023, but this pair has retraced 350 pips lower in January, as USD buyers returned and the Euro traders are expecting the ECB to start cutting rates in spring. Yesterday the price pierced below the 200 daily SMA, but it reversed back up in the evening after some positive news from the US, so we might have seen the bottom in this pair for now, unless the FED sounds increasingly dovish tomorrow.
Late in 2023 markets held a very dovish view of the FED, expecting around 160 bps of rate cuts in 2024, as the US economy and particularly the labour market were softening up. But, this month we have seen some really positive data from the US, with employment making a reversal in December, as all indicators show, while manufacturing and services have also improved considerably.
So, the market sentiment has gone on the opposite sides the respective central banks of both currencies; while the odds of rate cuts for 2024 have gone down from what we saw in December, the odds of the ECB doing so have gone up, which is weighing on the Euro. Yesterday we saw a number of European Central Bank members who accepted that rate cuts are coming in spring, which is a soft from the total pushback that we were seeing until last week.
EUR/USD Daily Chart – Technical Analysis
The 200 SMA is Holding for the Moment
However, yesterday we saw a strong reversal in EUR/USD during the evening which came from the USD side, after the Treasury revealed a healthier balance sheet. But the bounce is unlikely to last as the Eurozone economy continues to weaken, while the US economy is rebounding. Today we had several GDP reports from Europe, which leaned on the negative side. This will turn the ECB even more dovish in the coming weeks.
European GDP Reports for January
EUR/USD Live Chart
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