EURUSD Opens Central Bank Interest Rate Decision Week On Bearish Momentum

Piece written by Mfanafuthi Mhlongo, Trive Financial Market Analyst 

The EURUSD currency pair opened the crucial central banks’ interest rate decisions week on the backfoot after disappointing services and manufacturing PMI data from the Eurozone weighed on the Euro during the session. The manufacturing PMI fell to its lowest in three years, after reaching 42.7 in July from  43.4 in June, while the services and composite PMI came in at 51.1 and 48.9, respectively, from 52.0 and 49.9 achieved in June. 

The softer-than-expected economic data from the Eurozone weighed on the cross, helping it reach a two-week low ahead of the highly anticipated interest rate decisions from the Fed on Wednesday, 26 July 2023, and the ECB on Thursday, 27 July 2023. The market is firmly expecting a 25-basis point rate hike from the respective banks, with the subsequent remarks towards the potential monetary policy path from the banks likely to have as high impact on the cross in the upcoming sessions. 

Technical 

The 4H chart shows that the cross is currently under bearish pressure following the release of PMI data from the Eurozone, with the price action firmly trading below the 50-EMA (blue line) and the daily pivot point. Therefore, should the bearish momentum persist, a short-term trading opportunity could exist as the price action moves towards the 50% and 61.80% Fibonacci retracement levels at 1.10563 and 1.10043. A break below the 61.80% Fibonacci retracement level could trigger a run towards lower levels, with the major support level at 1.08360 (red line) likely to act as a level of interest. 

However, should upside momentum prevail, short-term trading opportunities could exist as the price action moves towards the 50-EMA, with the 23.60% Fibonacci retracement level at 1.11726 likely to act as the next level of interest. A sustained break above the level would bring the major resistance level at 1.12758 (green line) into play. 

Summary 

The cross started the week on the back foot, declining below the 1.11 price level before the bulls recouped some of the losses, and traders could expect the volatility experienced in Monday’s session to persist as the market turns their focus to the central banks’ interest rate decision due later this week. Thus, traders could keep a keen eye on the 1.11726 and 1.10563 price levels for potential short-term trading opportunities. 

Sources: Tradingview, Trading Economics, Reuters, Dow Jones Newswire.