Piece Written by Nkosilathi Dube, Trive Financial Market Analyst
For the eighth consecutive week, the EURUSD currency pair has been on a downward trajectory, a testament to the Greenback’s prevailing strength in the financial markets. The Dollar is holding firm at a three-month peak against the Euro, and interest rate disparities significantly influence this.
Both the European Central Bank (ECB) and the Federal Reserve are expected to maintain their current rates this month. Nevertheless, the Greenback holds a notable interest rate edge, with a margin of over 100 basis points above the Euro. This makes it more appealing to investors in search of higher yields.
Additionally, Germany, the linchpin of Europe’s economy, is causing apprehension due to its prolonged period of economic stagnation. Thursday’s data on industrial production only serves to underscore the narrative of a sluggish German economy, adding further downward pressure on the Euro. In addition, German inflation cooled by ten basis points to 6.1%, further indicating a slowing economy.
Technical
The EURUSD has been on a downward trajectory, following a clear path within a descending channel pattern and staying below the 100-day moving average. Notably, the 1.09454 level has proven to be a steadfast resistance point, aligning with the upper boundary of the descending channel. A sharp decline from this resistance level has brought the EURUSD within reach of June’s low, established with a support level of 1.06668.
At present, the pair is hugging the lower boundary of the descending channel, undergoing a period of sideways consolidation within a rectangular pattern characterized by diminishing trading volumes. The Relative Strength Index indicates oversold conditions, combined with the pair’s proximity to the channel’s lower boundary, suggesting a potential reversal may be on the horizon.
Optimistic Euro traders will likely keep an eye on the 1.09454 level for a potential shift in momentum, while a substantial breakdown driven by volume below the rectangle pattern and the descending channel could signal an impending downward movement. If this scenario unfolds, the 1.06668 level appears to be a likely target for the pair.
Summary
The EURUSD continues its eight-week descent as it succumbs to the Greenback’s resounding dominance. Lingering concerns over Germany’s economic stagnation further weigh on the Euro. Technical indicators suggest a potential reversal may be in sight as the pair nears crucial support levels.
Sources: Reuters, TradingView
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