EUR/USD Technical Analysis: Dollar Slips as Rate Cut Expectations Rise
Original article by Nour Eldeen Al-Hammoury, InvestingLive.com
The EUR/USD currency pair continues to trend higher as the U.S. dollar struggles amid growing speculation about interest rate cuts by the Federal Reserve. The greenback’s weakness stems from a confluence of lower inflation expectations, dovish commentary from Fed officials, and mixed economic data suggesting the U.S. economy may be slowing. The euro, by contrast, is benefiting from relatively stable macroeconomic indicators out of the Eurozone and improved investor sentiment.
This technical analysis explores how current fundamentals and technical developments are shaping the EUR/USD pair, providing traders with a broader understanding of potential market direction in both the short and long term.
Summary of Current Market Conditions
The forex market is heavily influenced by interest rate expectations. With the U.S. inflation data softening and the Federal Reserve’s tone softening, traders have reassessed their rate outlook. Investors are now pricing in a higher likelihood of rate cuts in the near future, which has weighed heavily on the U.S. dollar and translated into gains for the euro.
Key contributing factors include:
– Softening CPI data suggesting that the Fed’s inflation fight may be nearing an end.
– Comments from various Fed officials indicating openness to rate adjustments if economic conditions soften further.
– Rising probability, as priced by future markets, of a Fed rate cut within the next two quarters.
– Moderation in U.S. GDP growth and weaker job market indicators, which are prompting investors to hedge against monetary policy over-tightening.
On the other hand, Eurozone economic data has shown mild improvements in certain leading indicators. While the European Central Bank is also navigating a tightrope between fighting inflation and preserving growth, the relative strength of euro zone data compared to the U.S. has helped EUR/USD rally from recent lows.
Daily Timeframe Analysis
Looking at the daily chart, EUR/USD has clearly broken out of a consolidation phase seen in previous weeks. The currency pair has shown resilience and followed a clear upward trajectory. This bullish move is supported by both fundamental momentum and technical confirmations.
Key observations:
– The pair is trading comfortably above the 50-day and 200-day simple moving averages (SMAs), both considered critical trend indicators.
– A golden cross, where the 50-day SMA crosses above the 200-day SMA, has formed — typically a bullish signal.
– Relative strength index (RSI) is currently hovering around 65, indicating a strong uptrend with room for further gains before entering overbought territory.
– MACD has recently crossed above its signal line and is trending higher, confirming bullish momentum.
Support and Resistance Levels
Understanding where current and future support and resistance levels lie can help traders identify entry and exit points.
Important support levels:
– 1.0650: A former resistance level now turned support since the breakout.
– 1.0580: The 50-day moving average, providing dynamic support to the uptrend.
– 1.0500: A psychological support and horizontal level from earlier this year.
Key resistance levels:
– 1.0730: A minor resistance area from a previous high.
– 1.0800: A psychological resistance and key Fibonacci retracement level.
– 1.0930: A significant resistance area that could act as a medium-term target for the bulls.
A break above 1.0800 could affirm further bullish consolidation, paving the way toward testing higher resistance near 1.0930.
Intraday Levels and Short-Term Outlook
For intraday traders or short-term market participants, momentum remains bullish, though volatility may rise due to macroeconomic catalysts such as central bank commentary or incoming inflation data.
Short-term observations include:
– Higher highs and higher lows are forming on the 4-hour chart, a typical bullish structure.
– EUR/USD is finding support along an ascending trendline originating from the early September lows.
– Volume patterns support
Read more on EUR/USD trading.