The EUR/USD exchange rate could rise further in the coming days in an attempt to recover the 1.02 resistance if all goes well for the European Central Bank (ECB) and Eurozone economies this Thursday. The price of the EUR/USD succeeded in testing the resistance 1.0201 before settling around the 1.0145 level in the beginning of trading Tuesday. The single European currency briefly succumbed to the massive bear market when it traded below par with the dollar for the first time since 2002 last week, but later saw a significant rally that ended the period near the 1.01 support.
It was after US Fed rate setters, including Governor Christopher Waller, James Bullard, and Atlanta Fed President Raphael Bostic, appeared to pour cold water on the popular notion that the Fed could raise rates. US down 1% later in July. Commenting on this, Eugene Liu, chief price analyst at DBS Group Research, said: "There may be greater recognition that the accelerated pace of tightening could cause more financial stress, which could exacerbate slowdown fears."
The idea of raising the US interest rate by a full percentage point prevailed after the Bank of Canada opted for the same last Wednesday and after US inflation data for June indicated that the journey back to the Fed's 2% target may be longer than many have given it credit. But the immediate appeal by Fed rate setters, and later a flurry of better-than-expected US economic numbers, led to a deflation of the dollar and a revival of the euro ahead of the weekend with the question of whether the dollar could fall further in the coming days.
To the extent that this occurs, the EUR/USD rate could continue to benefit, although the most important determinants of the single European currency outlook will be Thursday's European Central Bank policy decision and concurrent developments in European natural gas markets. Lee Hardman, Currency Analyst at MUFG, said: “The main upside risks to our trade idea this week is whether the European Central Bank further tightens the front with a 50 basis point rate hike, market participants are looking at. positively to the plans of the European Central Bank's anti-retail policy instrument.
"In contrast, if the plans of the European Central Bank's anti-retail policy tool disappoint and/or Italy comes close to holding early elections, the underlying issue of euro weakness will be strengthened," the analyst added. EUR/USD.
A vote scheduled in Italy's parliament is expected on Wednesday to determine whether there will be early elections in Italy, which many analysts say would pose a downside risk to the euro, and ahead of the expected resumption on Thursday of Russian natural gas flows through the Nordstream pipeline. 1. Whether these gas flows return after the ongoing 10-day maintenance shutdown will have a major impact on the outlook for European economies as well as on the ECB's interest rate policy in the coming months.
EUR/USD Analysis
EUR/USD is trading below the bearish trend line on the daily time frame, and the currency pair appears ready to test the resistance level that has been stable since March of this year. Currently the 100 SMA is below the 200 SMA to confirm that the general trend is still down and the selling is likely to gain momentum. Rather, the gap between the moving averages is widening to reflect increased selling pressure.
The Fibonacci retracement tool shows where sellers may be waiting for a jump. The 38.2% level is at 1.0222, then the 50% level is near the 1.0300 resistance. The biggest retracement might reach 61.8% Fibonacci at 1.0388 near trend line resistance. However, the stochastic is already reflecting oversold or exhausted levels among the sellers, so a rise in upward pressure is expected. This may be enough to keep the correction continuing into the nearby areas of interest before the oscillator reaches overbought territory.
The RSI is also in the oversold territory to indicate that sellers are taking a break and allowing buyers to take back control.
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