EUR/USD Contained After its 2-Day Rally & Ahead of Critical Tech Levels

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EUR/USD Analysis

The US Federal Reserve made dovish changes to its monetary policy during last week's 75 basis points rate hike, pointing to a moderation in the pace of tightening in the future. However, Chair Powell ruled out any pause, adding that the terminal rate may end up being higher than they had projected in September (4.6% median). [1]

This caused EUR/USD to drop, but rallied on Friday after the US NFPs, managing to cover the week's loses. The report showed the addition of a strong of 261,000 jobs in October, but growth is declining, while unemployment rose to 3.7%.

The current week started in similar fashion, as markets brushed aside risk factors from China and seem to be trying to come to terms with the Fed's tightening and contemplate the recent hawkishness of the European Central Bank.

The two-day rally has brought EUR/USD above the EMA200 and the critical 1.0094-1.0198 region in its eyesight. This includes the October& September highs, as well as the key 23.6% Fibonacci of the 2021 high/2022 low decline (1.0199). Daily closes above this level could open the door for further recovery towards the 1.0369-1.0400 region.

The common currency however deflates today, as it struggles to hold parity, finding its self in a familiar situation. Despite recent surge, it is hard to envision sustained recovery, as long as the Fed remains on its aggressive tightening path that boosts the USDollar.

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Furthermore, similarly to the previous leg up, the Relative Strength Index points to overbought conditions. As such, we could see further pressure and a return below the EMA200 (black line), although fresh month lows (0.9729) would likely need a catalyst and it may be early to talk for sustained sub-0.9631 moves.

The technical outlook is a bit mixed, since above the cloud and the EMA200, immediate bias is on the upside. On the other hand, EUR/USD does not yet inspire much confidence, given the recent failure above parity. In any case, a lot is going to depend on Thursday's US CPI inflation update.

Nikos Tzabouras

Senior Financial Editorial Writer

Nikos Tzabouras is a graduate of the Department of International & European Economic Studies at the Athens University of Economics and Business. He has a long time presence at FXCM, as he joined the company in 2011. He has served from multiple positions, but specializes in financial market analysis and commentary.

With his educational background in international relations, he emphasizes not only on Technical Analysis but also in Fundamental Analysis and Geopolitics – which have been having increasing impact on financial markets. He has longtime experience in market analysis and as a host of educational trading courses via online and in-person sessions and conferences.

References

1

Retrieved 23 Apr 2024 https://www.federalreserve.gov/monetarypolicy/fomcpresconf20221102.htm

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