Title: EUR/USD Declines Following Rejection from Key Supply Zone
Author Credit: Originally written by Staff Writer at The Tradable
The EUR/USD currency pair recently experienced a sharp decline after encountering resistance near a critical supply zone. This downward movement came after the euro attempted to gain ground against the U.S. dollar, but bearish pressure in a significant resistance area ended the rally. The reversal signals potential for further downside in the short to medium term, aligning with broader macroeconomic themes and technical indicators.
Here’s a comprehensive breakdown of the factors contributing to the rejection and the implications for forex traders moving forward.
Technical Breakdown of the EUR/USD Chart
The recent price action of EUR/USD showed clear technical patterns pointing toward a bearish reversal. The pair had been gaining traction, aiming to reclaim previous support levels turned resistance. However, the euro met supply pressure around the 1.0880 to 1.0900 level, where sellers took control and pushed prices lower.
Key Technicals:
– The 1.0880–1.0900 range acted as a peer-confirmed supply zone, visible on the 4-hour and daily charts.
– Strong bearish candles formed precisely when price hit this zone, followed by a sharp decline.
– The 50-period moving average on the 4-hour chart shows a downturn, further suggesting bearish sentiment.
– Momentum indicators like the Relative Strength Index (RSI) diverged while price was climbing, indicating weakening bullish momentum.
– MACD histogram began decreasing near the resistance zone, highlighting dwindling buying pressure.
The clear rejection from what many technical analysts view as a well-defined supply area affirms the bearish bias. Fibonacci retracement levels also suggest that the move may continue downward, with the 50% retracement from the March/April swing lows being a key target.
Macro Fundamentals Behind the Move
While technicals often provide precise entry and exit points, forex markets are also heavily influenced by macroeconomic events and policy trajectories. One of the key drivers in this EUR/USD drop is the divergent monetary policies between the Federal Reserve (Fed) and the European Central Bank (ECB).
Federal Reserve Outlook:
– The U.S. Federal Reserve maintains a hawkish position, driven by persistent inflationary concerns.
– Though the latest Consumer Price Index (CPI) figures showed a slight cooling in inflation, core inflation remains elevated.
– The Fed has reiterated its data-dependent approach but remains cautious about reducing interest rates prematurely.
– Recent comments from Fed officials continue to reinforce the need to keep rates higher for longer if inflationary pressures do not abate convincingly.
European Central Bank Stance:
– The ECB, on the other hand, has begun signaling dovish intentions amid signs of economic stagnation in the Eurozone.
– Economic data out of Germany, the bloc’s largest economy, remains tepid with declining manufacturing activity and underwhelming growth figures.
– ECB President Christine Lagarde recently hinted at the possibility of rate cuts by summer if inflation continues to move toward the 2 percent target.
– The Eurozone’s inflation data shows a more pronounced slowdown compared to the U.S.
This policy divergence gives the dollar an advantage, making the EUR/USD pair vulnerable to downside moves. Stronger job market reports from the U.S. and louder whispers of future Fed hikes could add further pressure to the euro.
Recent Economic Data Influencing EUR/USD
The currency pair’s latest price action has been impacted by several significant economic data releases from both the U.S. and Eurozone. Traders should keep these in mind for context surrounding the current move.
United States:
– Non-Farm Payrolls (NFP) exceeded expectations for the second consecutive month.
– Unemployment remains near historic lows, showing that the U.S. labor market is still resilient.
– Retail sales surprised to the upside, indicating strong consumer demand despite high interest rates.
– Producer Price Index (PPI) showed renewed upside, potentially putting inflation back on the radar.
Eurozone:
– Consumer Confidence readings dropped,
Read more on EUR/USD trading.