EUR/USD Technical Analysis: Compensating for Sharp Losses

• For two days in a row, and amid weak attempts to rebound upward, the price of the currency pair EUR/USD is trying to compensate for its sharp losses.
• This affected the support level of 1.0448, the lowest for the currency pair since the year 2023.
• It stabilized around the 1.0510 level at the time of writing the analysis, where the bears’ control over the trend remains.
• It will remain so until the markets and investors react to the announcement of the US job numbers, which will have a strong and direct reaction to the future tightening of the US Federal Reserve’s policy.
• The policy supports the record gains for the US dollar throughout the year.

Overall, the EUR/USD may take important cues from the upcoming US non-farm payrolls release, as another significant rise in employment could confirm the possibility of the Federal Reserve raising US interest rates by another 0.25% before the end of the year. In this case, the US dollar could gain momentum due to interest rate expectations and risk aversion flows due to recession fears.

On the other hand, weak US jobs data could indicate that the US central bank is likely to remain passive over the next few months, which could lead to further losses for the US dollar. Leading jobs indicators are ranked throughout the week, providing further clues as to how the official non-farm payrolls numbers are shaping up.

The euro is expected to recover decisively against the dollar as the US Federal Reserve still looks to “overtake” the European Central Bank (ECB) in 2024. This is according to a new analysis by UniCredit, the Milan-based international lending and investment bank. In this regard, Roberto Mielich, Forex analyst at UniCredit Bank in Milan, says: “We expect a recession in the United States in 2024, with the Federal Reserve cutting interest rates earlier and at a greater rate than the European Central Bank, which still indicates… Until the euro against the dollar will return to above the 1.10 level next year.”

The forecast comes at a time of extreme dollar strength that has pushed the euro-to-dollar (EURUSD) exchange rate below 1.05 from 2023 highs near 1.12, giving UniCredit’s forecast a countertrend tone.

But the analyst’s reasons for expecting the tables to turn again are clear: The Fed will be in a position to cut interest rates within months. There is plenty of room for such a move given that it has raised interest rates higher than its major peers. But the US dollar’s near-term strength could continue, with the US jobs report looming this week – one of the most notable US data of the month – unlikely to change the stellar performance of the greenback, which is now up 7.5% since July.

Technical analysis of the currency pair: The price of the EUR/USD currency pair formed lower highs and lower lows within a descending channel on the hourly time frame. The price is testing support and may be due to a move to the top of the channel. The Fibonacci retracement tool shows levels where sellers may be waiting to join the downtrend. The 38.2% level is located at 1.0514, then the 50% level is located near the top of the channel at 1.0534. The downside correction line could be the 61.8% Fib level at 1.0554, which is in line with the dynamic 200 SMA resistance level.

Regarding the topic of moving averages, the 100 SMA is below the 200 SMA to confirm that the general trend is still bearish. In other words, the sell-off is more likely to resume than to reverse. Stochastic is still pointing higher at the moment and has room to rise before reaching the overbought zone to indicate exhaustion among buyers. Once this happens and the oscillator turns lower, EUR/USD may follow suit. Likewise, the Relative Strength Index is midway in its rise to the overbought zone, so the pair may continue to rely on upward movement before overbought conditions are met.

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