Economic Stances in the US and EU
The monetary policy stance of a country plays a pivotal role in determining the behavior of its currency. Both the US Federal Reserve (Fed) and the European Central Bank (ECB) have recently made important monetary policy decisions.
Federal Reserve’s Recent Actions and Outlook
- The Fed has increased rates by 25 basis points, in line with market expectations.
- Subsequent data has revealed a trend towards disinflation, and there are indications of a softening labour market, even though it remains tight.
- The general economic sentiment has tilted towards a downside surprise, which has influenced Fed members to consider a pause in rate hikes for September.
- A significant revelation was the recent surge in the ISM Services PMI, which has made the market anticipate an even chance of another rate hike in November.
European Central Bank’s Stance and Economic Indicators
- The ECB also raised its rates by 25 basis points. However, there was a dovish inclination in its statement.
- President Lagarde, similar to Fed Chair Powell, emphasized data dependency and retained all available options.
- Inflation is slightly softening but continues to be at elevated levels.
- The EU labour market has been performing impressively, with unemployment levels at a historic low.
- Despite these factors, there are looming fears of a swift economic decline, suggesting a potential recession within the next six months.
Technical Analysis of EURUSD
Daily Timeframe
On examining the daily chart of EURUSD, it’s evident that the currency pair attempted a breakout from its declining trendline. However, this was quickly countered, resulting in a false breakout. This has significantly shifted the control to sellers, paving the way for potential lows around the 1.0515 mark.
4-hour Timeframe
Diving deeper into the 4-hour chart, the false breakout becomes more apparent. This pattern often indicates a reversal. The consistent pattern of lower lows and highs, coupled with the bearish crossover of moving averages, signifies the continuation of a downtrend.
1-hour Timeframe
The 1-hour chart presents an intriguing scenario. There’s a noticeable divergence with the MACD. Typically, such a divergence signals a potential decrease in momentum, usually culminating in pullbacks or trend reversals. We witnessed a pullback to the trendline and the 38.2% Fibonacci retracement level, where sellers resumed their dominance. A dip below recent lows could intensify selling pressure, pulling the price further down. Conversely, for buyers to gain an upper hand, they would have to propel the price above the trendline. However, for a complete trend reversal, a breakout above the dominant declining trendline, near the 1.08 region, is essential.
Factors to Watch
Today, market participants will keenly await the US Jobless Claims data. This metric offers insights into the health of the US labor market. As observed recently, robust US data acts as a catalyst for the US Dollar, amplifying the prospects of the Fed taking assertive actions. Positive data might bolster the USD, whereas disappointing figures could exert downward pressure in the short term.
In conclusion, the EURUSD pair’s behavior is intricately linked to the economic and monetary policies of both the US and the EU. Traders and investors need to keep a vigilant eye on these indicators and central bank decisions to make informed choices.
