- The increasing expectation of additional Fed policy tightening boosted the Dollar, capping the EUR/USD pair.
- ECB to raise interest rates for a prolonged period.
- The number of people applying for unemployment benefits in the US has decreased, showing a strong labour market.
EURUSD Fundamental Analysis
EUR/USD is trading at $1.0606, down by 0.56% in 24 hours. During European Trading hours, the currency pair EUR/USD was gaining on the strength of EUR amid a positive CPI report. However, during the American Trading session, the forex pair lost its daily gains as the US Dollar gained momentum due to positive Employment data.
Hawkish Fed officials
During the early trading session, the pair EUR/USD remained under pressure as the market sentiment turned in favour of the greenback. The US ISM Manufacturing Index from yesterday increased inflationary worries in the market. The numbers indicate that inflationary pressures have returned, so the Fed shouldn’t rush to halt its monetary policy.
Moreover, hawkish comments by Federal Reserve (Fed) officials confirmed the expectations. Raphael Bostic, president of the Atlanta Fed, stated that he believes the policy rate must increase to 5.00%-5.25% and stay there far beyond 2024. Neel Kashkari, president of the Minneapolis Fed, added to this by emphasizing that the US still has extremely high inflation and that it is their mission is to lower it.
Eurozone Final CPI & Meeting Minutes
On the European side, the annual CPI came in green for February with an 8.5% figure against the projected 8.35%. Furthermore, the Eurozone core rate of inflation, which excludes goods like food, energy, alcohol, and tobacco, increased to 5.6%, above the European Central Bank’s 2% target.
Meanwhile, another release of the minutes from the European Central Bank’s February meeting shows a hawkish debate and a clear commitment to raise interest rates.
According to ECB president Christine Lagarde, they require more interest rate hikes beyond the one that will occur later this month because of the continuously high inflation.
The ECB has planned to raise interest rates by another half-point on March 16 to fight inflation. However, future meetings are possible as investors increase their bets on how far the ECB will need to hike rates.
The hawkish ECB stance raised market sentiments, and EUR slightly raised in the European hours, caping overall losses of EUR/USD.
US economic Data
Today’s Revised Unit Labor Costs, Revised Nonfarm Productivity, and Unemployment Claims all showed favourable results in American hours. The number of Americans claiming new jobless claims declined again last week to 190K against the forecasted 196K, indicating continued labour market improvement that might keep the Fed hiking interest rates.
The value of the US dollar increased as it regained stability. The Dollar Index rose 0.45% to 104.95, nearing two-month highs.
The positive economic data supported the USD index while capping EUR/USD pair.
EUR/USD Technical Analysis
The H4 Technical Outlook of the EUR/USD forex pair shows that the next few hours will decide the future momentum of the pair. Therefore, it might be time to only observe and wait for signal confirmation.
The pair has attempted to regain some of its lost momentum but it still appears that the negative scenario might continue for a while. However, if the 20-Day Simple Moving Average line breaks above the 50-Day SMA, it will pave the way for further upside potential.
In the forthcoming sessions, there is the possibility that the pair might see some support around 1.05764. Any break below would activate the next critical support level at 1.05654. This level is expected to support the pair in the coming hours in case of heavy bearish pressure. If EUR/USD fails to hold this level, then the next support will be seen at 1.05330.
On the other hand, the bullish scenario suggests that the pair’s initial resistance lies close to 1.06105, the 50% Fibonacci retracement of 1.05330 to 1.06910 level. Furthermore, any break above this level would push the prices even past the 38.3% Fibonacci Retracement level towards critical resistance at 1.06686. The currency pair EUR/USD would have to move past this level to turn its overall momentum bullish.
Regarding technical indicators, the Moving Average Convergence & Divergence Indicator is suggesting a possible trend continuation and fall in prices ahead. The Relative Strength Index (RSI) is moving close to the oversold zone; however, it still hasn’t entered the level. Whereas the Stochastic Indicator has already reached the oversold zone, suggesting a possible reversal.
EUR/USD Daily Technical Levels:
Pivot Point: 1.0641