For the second day in a row, the price of the euro currency pair against the US dollar, EUR/USD, is trying to compensate for its recent losses. This affected the support level 1.0909, and attempted to rebound upwards stopped at the resistance level 1.0975. The inflation figures for the euro zone may have a strong and direct reaction to the euro’s recent attempts.
The euro will remain well supported against the dollar, says UniCredit. UniCredit expects further gains for EUR/USD which will bring new year-to-date highs above the 1.10 resistance. The Milan-based European lender says the US dollar may build on the previous week’s losses that followed US news, as headline US inflation fell to +5.0% y/y from +6.0% in February. The deflationary trend was confirmed by the decline in the US Producer Price Index for March.
“Therefore, EUR/USD is in a position to reach new YTD highs after 1.10,” says Roberto Mialic, Forex Strategist at UniCredit Bank in Milan.
The US dollar is extending lower as investors increasingly believe that the Federal Reserve will cut US interest rates in the second half of 2023 as the economy enters recession. Meanwhile, the euro was supported by expectations that the European Central Bank would raise interest rates further in response to better-than-expected data flows and the rapid decline in natural gas prices. The analyst adds: “The tone remains bullish on this EUR/USD and the options market also points to further EUR strength: the risk reversal rate remains bullish and is barely negative at the moment.”
In general, the EUR/USD exchange rate rose by 2.55% in March 2023 and rose by another 1.0% already in April, and the pair’s highest price is at 1.1075. And in 2023, the exchange rate will increase by 2.47%. The analyst also said, “A further rally for EUR/USD above a new year-to-date high of 1.1075 seems imminent, in our view, with 1.12 resistance as the next target on the charts and risks tilted to the upside at least. In the near term.”
- The EUR/USD price attempt to return to stability above the psychological resistance 1.1000 will continue to support the bulls’ control over the trend.
- It will also support the pair to test stronger resistance levels, especially if inflation figures in the euro zone today support the path of tightening European Central Bank policy.
- The closest ones after that are 1.1065, 1.1120 and 1.1200, respectively.
From the second and last level, the technical indicators moved towards strong overbought levels. On the other hand, and according to the performance on the daily chart below, the EUR/USD pair may abandon its bullish outlook, if the currency pair returns towards the support levels of 1.0880 and 1.0790, respectively.
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