Piece written by Alexa Smith, Trive Financial Market Analyst  

The US Dollar is standing strong against the Euro, bolstered by expectations that interest rates will remain higher for longer due to a resilient US economy. The Federal Reserve emphasised that interest rate hikes were still on the table, pending the release of labour market data which surpassed expectations. However, US inflation data is being released this week, which will be a likely determinant of the future interest rate path.  

In the US, Non Farm Payrolls increased from 185K to 187K, accompanied by a decline in the unemployment rate from 3.6% to 3.5%. Headline inflation is expected to grow from 3% to 3.3%, while core inflation is expected to cool from 4.7% to 4.6%. On the other side of the pond, the European Central Bank (ECB) emphasised that its upcoming interest rate decision will be based solely on the latest economic data in Europe, which has shown signs of a slowdown. These macroeconomic indicators reduce the likelihood of the ECB extending its monetary policy tightening, potentially sending the EURUSD currency pair further into the red.  

Technical 

A downward trend is evident on the 4H Chart, with the EURUSD currency pair establishing support at 1.09164. A leg-up at this support level attempted to regain upside traction as the price action edged past the 50-day moving average; however, the 1.10444 resistance was rejected, which encouraged a pullback towards the current price level. 

Having breached the 23.60% Fibonacci level, the price action is primed for a potential pullback towards the 1.09164 support. Should this support level fail to hold, a breakdown could pave the way towards the 1.08383 major support. However, the 1.09164 support could hold, which may encourage a leg up towards the 1.10444 resistance, marking a potential pivot point for a reversal. 

Summary 

The EURUSD currency pair slumped due to robust labour market data in the US and the potential for further interest rate hikes from the Fed. If inflation data rises, a breakdown of the 1.09164 support may threaten the risk of further downside opportunities. However, cooling inflation may encourage a leg up towards the 1.10444 resistance, which may mark a pivot point for a reversal. 

Sources: TradingView, Reuters, Trading Economics 

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