Piece written by Mfanafuthi Mhlongo, Trive Financial Market Analyst 

EURUSD slid below $1.06, a level not seen since March, as concerns of an economic slowdown outweighed inflation fears, hinting at a possible halt in the European Central Bank’s (ECB) rate hikes, while a more hawkish Federal Reserve has buoyed the US Dollar.  

Investors aren’t anticipating further rate increases this year, even considering a potential rate cut by next June. ECB President Lagarde believes current policy rates can significantly contribute to achieving inflation targets if maintained. Fellow ECB board member Villeroy de Galhau is cautious about pushing the economy too far. However, colleague Schnabel warns that the eurozone’s battle with high inflation may not be over. 

Declining German consumer sentiment and an uncertain macroeconomic environment are favouring the USD, with EURUSD heading towards parity. US economic data could further influence the pair. Despite some concerns in the US economy, the eurozone faces the possibility of a recession, maintaining bearish pressure on EURUSD, possibly heading below $1.05. 

Technical 

The EURUSD pair remains under bearish pressure, trading around 1.05673, as the US Dollar Index (DXY) holds firm at ten-month highs above 106. The Federal Reserve’s hawkish stance, fuelled by concerns over persistent inflation, has boosted the dollar. The central bank is set to hike rates again this year and is less inclined to cut rates next year, as indicated in its September policy meeting. 

On the EURUSD 4-hour chart, the price is below the daily pivot point, and all key EMAs are downward-sloping, with the 20-EMA (green line) below both the 50-EMA (blue line) and 100-EMA (red line). The RSI is rising but remains below 50, indicating the presence of bearish sentiment. 

Short-term trading opportunities could emerge should the price action sustain a push towards the 1.05384 support level, potentially targeting the 1.04988 support next. However, a move above the daily pivot may provide short-term opportunities toward initial resistance at 1.06081, with further resistances at the 1.06311 and 1.06708 price levels. 

Summary 

The currency pair remains under bearish pressure as the potential monetary policy divergence continues to boost the US dollar and weigh on the Euro. Thus, the 1.05384 and 1.04988 support levels could act as levels of interest in the short term should the bearish momentum persist. 

However, a break above the daily pivot point would likely bring the 1.06081 resistance level into play in the short term. 

Sources: TradingView, Trading Economics, Reuters, Dow Jones Newswire, MT Newswire.