EUR/USD Analysis: Pair Pulls Back Toward 1.1768 Support Zone
Original Article by The Tradable
The EUR/USD currency pair has experienced a retreat from recent highs as the U.S. dollar gains strength amidst several macroeconomic developments. Currently trading below the 1.1800 level, the euro is encountering sustained pressure triggered by concerns around COVID-19 developments, economic divergence between the United States and the eurozone, and renewed safe-haven demand for the dollar.
After reaching recent resistance levels above 1.1850, EUR/USD struggled to hold gains as market participants reassess the economic outlook in both regions. The move downward is bringing the currency pair back toward key support levels, particularly near the 1.1768 region. This level previously provided a launch point for bullish momentum and could now act as a critical area of price reaction.
Key Factors Driving the Pullback
A combination of factors is playing into the current downward pressure on the euro-dollar cross. These fundamental elements are informing sentiment across the foreign exchange markets:
1. Resurgence of COVID-19 Concerns in Europe
– Rising infection rates in several parts of Europe have spurred talk of renewed restrictions or lockdowns in specific countries.
– The uncertain trajectory of the eurozone’s recovery continues to put a damper on investor optimism and is weighing on the euro.
– Some European Central Bank (ECB) officials have expressed caution over the region’s prospects, limiting the potential for any hawkish policy signals in the near term.
2. Diverging Recovery Paths Between the U.S. and the Eurozone
– U.S. economic data continues to outperform expectations, particularly with nonfarm payrolls, retail sales, and manufacturing indicators sustaining upward trends.
– The eurozone recovery remains more fragile, hindered by uneven vaccination rollouts earlier in the year and persistent structural issues in southern member states.
3. Strength in the U.S. Dollar
– The dollar has gained across multiple pairs as investors increased allocation toward safe-haven assets.
– Rising U.S. Treasury yields are also contributing to a stronger greenback, especially as the Federal Reserve inches closer to tapering bond purchases.
– The upcoming Jackson Hole Symposium and Federal Reserve meetings are expected to shed further light on the exact path of monetary policy tightening in the U.S., which continues to create an upward bias in the dollar.
Technical Outlook: Key Support and Resistance Levels
From a technical perspective, the EUR/USD pair is halfway through a correction from its local highs. The next steps for price action depend on whether the key support levels hold firm or if the bearish momentum accelerates further. Traders are carefully watching the 1.1768 zone.
Support Levels to Watch:
– 1.1768: A critical zone that previously acted as a base before the pair’s last move upward. A hold here may signal short-term consolidation.
– 1.1715: Represents the next significant support, which may come into play if bearish pressure persists beyond 1.1768.
– 1.1660: Considered a line in the sand for bulls, below which a deeper correction may unfold.
Resistance Levels in Focus:
– 1.1800: A psychological barrier and previous intraday resistance, it now forms the nearest upside challenge.
– 1.1850: A level the pair failed to breach firmly on the last rally. A break above would renew bullish interest.
– 1.1900: Medium-term resistance with significant technical and psychological importance.
Trend Indicators and Momentum
Analyzing daily and 4-hour charts provides insights into near-term and medium-term technical dynamics:
– Moving Averages:
– EUR/USD is now trading below its 20-day and 50-day moving averages, indicating short-term downside pressure.
– The 200-day moving average remains far above current levels, suggesting the longer-term outlook has not yet turned bearish.
– RSI (Relative Strength Index):
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