Title: EUR/USD Faces Sustained Selling Pressure Beneath Crucial Resistance Level
Originally written by: Nick Cawley (IG), adapted and expanded for clarity and depth.
The euro continued to weaken against the US dollar this week, as the EUR/USD currency pair remained under strong selling pressure. Traders are watching closely as the pair struggles to hold above key technical support levels and fails to move beyond significant resistance points. This continued weakness signals a prolonged downtrend for the euro, exacerbated by fundamental and technical factors including diverging monetary policies, economic data releases, and deteriorating sentiment in the eurozone.
Overview of EUR/USD Performance
EUR/USD has experienced consistent downside price action in recent sessions. Despite intermittent bounces, the market seems unable to gain sustained momentum beyond resistance levels. The pair dropped notably after an unsuccessful attempt to break higher earlier this month.
– Current EUR/USD price hovers near 1.0850
– The 200-day simple moving average (SMA) is acting as dynamic resistance
– Sellers continue to dominate the pair amid economic divergence between the US and eurozone
– Markets see limited bullish catalysts to reverse the downtrend in the near term
Technical Analysis: Key Resistance and Support Levels
EUR/USD has been stuck in a tight range in recent weeks, with multiple failed efforts to break through overhead resistance levels. The inability to maintain higher prices has invited more sellers into the market.
– 200-Day SMA: The 200-day simple moving average has capped gains and remains an important resistance point around the 1.0880–1.0900 region. As long as the price stays below this average, the broader downtrend remains intact.
– Fibonacci Resistance: A Fibonacci retracement of the 2024 swing low to swing high shows key resistance around 1.0890. This level aligns with the 61.8 percent retracement and has failed to hold as support during rebound attempts.
– Support Zones:
– Immediate support lies near 1.0810
– Further downside target near 1.0755
– A drop below these levels could open the door toward the 1.0700 psychological handle
– Relative Strength Index (RSI): RSI remains neutral, currently around 45 on the daily chart, suggesting the pair has room for further movement in either direction. However, there’s no indication of oversold conditions that might attract bargain-hunters just yet.
– Downtrend Channel: EUR/USD continues to trade within a descending channel pattern, reinforcing the bearish narrative. Until this channel is broken decisively to the upside, traders are likely to favor selling rallies.
Fundamental Headwinds for the Euro
A combination of macroeconomic data and central bank policy divergence is pressuring the euro. The European Central Bank (ECB) and the Federal Reserve (Fed) are on different paths when it comes to interest rate outlooks and broader monetary policy.
– ECB’s Dovish Stance:
– The ECB has hinted at potential rate cuts in the second half of 2024, citing persistent economic slowdown in the euro area and improving inflation data
– Weak economic data from Germany and France continues to weigh on the eurozone aggregate figures
– Industrial output, business sentiment, and retail sales all point to lackluster performance
– Federal Reserve’s Hawkish Outlook:
– Despite moderating inflation, Fed policymakers remain cautious and have signaled fewer rate cuts than previously anticipated
– The US labor market remains resilient, with unemployment staying low and wages remaining elevated
– US CPI and PPI data continue to support a relatively stronger dollar
These contrasting policy outlooks fuel ongoing demand for the US dollar as investors seek higher yields and relative safety.
Market Sentiment and Positioning
Recent Commitment of Traders (COT) data and retail sentiment from IG suggest that a large number of traders are betting on an impending trend reversal. However, this could present contrarian trading opportunities for bears.
– Retail Sent
Read more on EUR/USD trading.