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EUR/USD Analysis and Charts

  • EUR/USD has been hit by a post-Fed bout of Dollar Strength
  • The US Central Bank pushed back early rate-cut bets
  • Eurozone inflation suggests there won’t be any early move from the ECB either

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The Euro continued to wilt against the United States Dollar on Thursday as the Federal Reserve’s commentary from the previous session gives the latter broad strength. A slight fall in Eurozone headline inflation had little impact on the pair, perhaps because the core rate topped forecasts.

The US central bank left borrowing costs alone, as had been universally expected. However, while its next move is still thought likely to be a rate cut, Chair Jerome Powell’s words after the decision left the markets pretty sure that no such move is coming at the Fed’s next policy call, slated for March. Indeed, May is now thought a more likely bet.

The US economy has proven more resilient than expected to higher interest rates, and the Fed will want to be certain that inflation has been tamed before it acts. The prospect of US rates on hold for longer at their current, 23-year highs naturally offers the Dollar support across the board.

Eurozone consumer price inflation for January came in at 2.8% on the year according to data released on Thursday. That was exactly as expected and a tick below December’s rate. However, the ‘core’ measure, which strips out the effects of food, fuel, alcohol, and tobacco, was 3.3%. That was just above the 3.2% expected.

Overall, the data suggest that market pricing of an April interest rate cut from the European Central Bank might be optimistic even with inflation relaxing in both France and Germany.

EUR/USD Technical Analysis

EUR/USD Chart Compiled Using TradingView

The last two days’ falls have seen EUR/USD slide beneath its 200-day moving average. While this shouldn’t be underestimated as a bearish signal, it’s worth bearing in mind that the move has come as a ‘Dollar strength’ story, rather than a ‘Euro weakness’ one, and maybe a little less impactful for that.

However the Euro is now back into a trading range last seen in early December. The Centre of that range is 1.07961, the third Fibonacci retracement of the rise up to late December’s highs from the lows of October 3. There’s likely support at 1.07254, the range base from December 8, ahead of further retracement support at 1.07154. A fall below that would leave the region below 1.05 vulnerable once again.

Bulls need to retake and hold the current range top at 1.08487 if they’re going to mount a convincing fightback.

IG’s sentiment indicator finds traders bearish at current levels, if not overwhelmingly so. The uncommitted may be well advised to see if weakness endures into the week’s close before taking a position.

of clients are net long.

of clients are net short.

Change in Longs Shorts OI
Daily 11% -10% 2%
Weekly 21% -24% -2%

–By David Cottle for DailyFX


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