The continued decline in the EUR/USD could lead to more impact, according to forex analysts at a leading international investment bank.
- The EUR/USD currency pair’s price performance is still stronger towards the downside, and since the beginning of this week’s trading, the euro/dollar price is heading down ahead of important and influential data and events.
- It tests the 1.0642 support level at the time of writing the analysis.
- As I mentioned before, the content of the minutes of the last meeting of the US Federal Reserve and the growth rate of the US economy will be the most prominent and most influential on the performance of the currency pair this week.
The continued decline in the EUR/USD could lead to more impact, according to forex analysts at a leading international investment bank. MUFG forex analysts say in a regular weekly briefing that they expect the dollar’s return to be unaffected by near-term event risks, i.e. the release of the FOMC meeting minutes and PCE contraction data this week.
And in fact, we are witnessing a rebirth of 2023 dominance of the US dollar, analysts say.
“The repricing of the higher interest rate and reduced expectations of interest rate cuts later this year has breathed new life into last year’s strong US dollar trading,” said Derek Halpenny, Head of Global Markets Research at MUFG.
What confirms the recovery of the dollar is the raising of expectations among investors for the peak in the cycle of raising US interest rates at the Federal Reserve. In January, a final increase was expected in March, but two more increases were added to the tally. Meanwhile, the odds of an interest rate cut later in 2023 receded, providing support for the dollar after a soft end to 2022 and starting in 2023.
“We recommend a new idea for trading EUR/USD in the short term to reflect our view that there is scope for the US dollar to broaden its range,” says Derek Halpenny, Head of Global Markets Research at MUFG.
EUR/USD climbed to 1.10 in January but by early February data from the US clouded expectations and the rally faded. Labor market dynamics, wage data, retail sales, and inflation figures point to the economy still strong enough to exceed targeted inflation levels, prompting EUR/USD to correct its gains.
MUFG believes that the US dollar is the remaining main driver of the EUR/USD exchange rate and targets a decline to the support level of 1.0350. On the euro side of the equation, MUFG says the recent good news regarding the region’s economic prospects is well understood. The price action also highlights that the interest rate market in the Eurozone and the Euro actually moved all the way at the beginning of this year to better reflect the improved cyclical outlook.
There is no change in my technical point of view on the performance of the price of the EUR/USD currency pair, as the general trend, according to the performance on the daily chart below, is still bearish. Forex investors may not care about the arrival of technical indicators towards oversold levels in case the US dollar continues to gain more ground Positive momentum from the content of the minutes of the last meeting of the US Federal Reserve and the growth rate of the US economy. The closest support levels for the currency pair are currently 1.0595 and 1.0480, respectively. From the last level, you can think of buying the currency pair, waiting for the moment of the rebound to the upside.
On the other hand, and for the same period of time, the bulls’ breach of the resistance level at 1.0825 will be important for the first change in the pair’s bearish outlook so far.
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