The euro’s rally has been traced back to the Silicon Valley bank failure in mid-March but has since been buoyed by softer US economic figures, less hawkish expectations for US interest rate policy, and inconsistency with the policy stance of the European Central Bank (ECB).
- EUR/USD has set itself on track for a sixth week of gains to open the new month, but its recovery could be hampered by profit-taking above the near 1.09 level ahead as a double layer of technical resistance is also blocking a path higher from the charts.
- Continued pressure on the US dollar helped the bulls push the EUR/USD currency pair towards the 1.0973 resistance level, the highest for the currency pair in two months, and stabilizes around its gains at the time of writing the analysis.
The European single currency made a fresh attempt to regain 1.09 against the dollar on Tuesday after being disappointed by sellers four times in the last week which could indicate that the speculative market is reaping profits on previous bets in favor of EUR/USD.
“The adjustment in the net EUR/USD position is intriguing,” said Stephen Gallo, FX expert at BMO Capital. In the week ending March 28, the market value of buying deals decreased from $8.3 billion to $7.9 billion, while selling deals increased to $7.5 billion from $6.5 billion.
“Barring more obvious signs of recession from the US economy, these revisions suggest that the 1.08-1.10 range in EUR/USD represents a near-term struggle on the upside,” he adds.
The euro’s rally has been traced back to the Silicon Valley bank failure in mid-March but has since been buoyed by softer US economic figures, less hawkish expectations for US interest rate policy, and inconsistency with the policy stance of the European Central Bank (ECB). ECB Governing Council members including Robert Holzmann, Gediminas Simkos, François Villeroy, and Bank Governor Christine Lagarde all indicated over the weekend or Monday that further interest rate increases in the eurozone remain possible, if not likely for the coming months.
This contrasts with the current position of the Federal Reserve, which said last month that an expected tightening of bank lending standards is likely to weaken US economic activity and inflation enough to necessitate a more cautious interest rate policy over the coming months.
In the same vein, Christina Clifton, chief economist, and currency analyst at the Commonwealth Bank of Australia wrote that: “EUR/USD and GBP/USD rose as the US dollar fell. Interest rate differentials support these currency pairs as financial markets expect more tightening from the European Central Bank and the Bank of England (BoE), compared to the FOMC.”
The recent diversified inflation conditions point to higher European interest rates than in the US and a more supportive outlook for the Euro after the Fed’s preferred inflation measures fell below the European Central Bank’s target eurozone rates last month. Since then, market-implied gauges of investor expectations have shifted in recent weeks to suggest that eurozone interest rates are likely to rise by another half percentage point in the coming months, but likely to increase US borrowing costs once in a while, if that is even possible.
The upward path of the EUR/USD currency pair is increasing in strength and the bulls’ control may culminate in testing the psychological resistance level of 1.1030, which is an important area on the daily chart below. At the same time sufficient to push the technical indicators towards overbought levels, and unless the euro gets more momentum, it may be exposed to operations Sell for profit at any time.
On the other hand, over the same period of time, breaking the support level at 1.0765 will be important for the bears to control the trend again. I still prefer to sell the EUR/USD from every higher level. The bulls’ control may continue until the markets react to the announcement of the US job numbers by the end of the week. Today, the announcement of the first US jobs numbers from ADP, and then the announcement of the reading of the ISM services PMI.
Ready to trade our daily Forex forecast? Here’s a list of some of the best Forex brokers to check out.