The Euro Area experienced two consecutive quarters of 0.1% GDP contraction, placing the bloc in a technical recession, following Germany’s lead, which slipped into a recession in the prior week. However, the EURUSD currency pair surprised to the upside, gaining 0.78% on Thursday as the market became aware of the recession.  

Supporting the pair was a potential monetary policy divergence between the Federal Reserve and European Central Bank (ECB). The market is pricing in a 72.4% chance of the Federal Reserve pausing rates next week. In contrast, the ECB President, Christine Lagarde, suggested more hikes to come as core inflation had not shown enough signs of peaking yet.  

Technical 

The EURUSD currency pair’s downtrend could be coming to an end following the price breakout above the descending channel pattern and, subsequently, the 100-day moving average. Support and resistance were established at the 1.06356 and 1.08292 levels, respectively.  

The breakout above the descending channel pattern established a higher high at the 1.07777 level. A subsequent retracement only lasted as far as the 61.80% Fibonacci Retracement Golden Ratio, where a reversal occurred to establish a higher low, indicating that the pair could be shifting into an uptrend. The EURUSD could be led toward the 1.08292 level if bullish traders commit to the upside. 

In contrast, a reversal could occur from the minor resistance of 1.07777, given that Relative Strength Index conditions point to overbought levels. If downside momentum picks up steam, the Golden Ratio at 1.06898 could be retested. 

Summary 

The week ahead will be one that will keep market participants on tenterhooks. With the Federal Reserve and ECB interest rate decisions looming, the EURUSD currency pair could grow volatile as the market attempts to reestablish a direction for the pair. If the Federal Reserve pauses while the ECB hikes, as expected, the Greenback could lose ground to the Euro, leaving the 1.08292 level probable.  

Sources: CME, Reuters, TradingView