The EURUSD Reaches Key Inflection Point. Will Bulls Come Out Of Hiding?

The EURUSD currency pair has been subdued by a confident Greenback, which took it off its year-to-date peak in April, now down 2.84% since. The Euro Area’s inflation has declined to 6.1%, while the U.S. inflation stands at 4.9%, above the shared 2% target.  

Despite the Euro Area experiencing two consecutive quarters of GDP contraction, slipping the region into a technical recession, the European Central Bank (ECB) has reiterated its commitment to fighting inflation, with more possible rate hikes. Across the Atlantic, the Federal Reserve is opening up to a rate pause, and this could be warranted by the significant decline in inflation, which the Fed may feel is enough to pause rate hikes. A policy divergence between the two regions could see the Euro be bolstered in the short to medium term if the Federal Reserve pauses while the ECB hikes rates.  

Technical 

The EURUSD currency pair has recently experienced a short-term downtrend, ultimately threatening the long-term uptrend. With the price crossing below the 100-day moving average, bears had their work cut out to take the price even lower. Support and resistance were established at the 1.05158 and 1.10935 levels, respectively. 

Following a rejection of the year-to-date high, price action retraced toward the 61.80% Fibonacci Retracement Golden Ratio at the 1.07365 level. A reversal could be imminent with the price trading in oversold Relative Strength Index conditions and at an inflection point formed by the Golden Ratio. If upside momentum builds up, the pair could be led higher, with the 1.10935 level likely earmarked as a point of interest.  

In contrast, a high volume breakdown below the Golden Ratio could indicate that bearish momentum is still in the works. The 1.05158 level could come into play if bulls stay out of the market at present.  

Summary 

The week ahead will be a blockbuster of a week, with interest rates and inflation rates set to be released. The U.S. will release its interest rate decision on Wednesday, while the ECB releases theirs a day after. The Golden Ratio at the 1.07365 level will likely be a pivot for bullish or bearish sentiment, depending on how the interest rate decisions materialise.  

Sources: Reuters, TradingView