The additional impetus for the EUR comes amid signs that interest rates in the Eurozone will rise more than previously expected. This comes as the European Central Bank (ECB) pursues a policy of raising interest rates to control inflation. Throughout the trading of this brief and low-liquidity week, the exchange rate of the euro currency pair against the US dollar, EUR/USD, moved on the threshold of the resistance 1.0670.
Performance and Influence Factors
Analysts believe that the ECB's hawkish rhetoric is mitigating the exacerbation of the EU-US yield differential, and should continue to provide some support for the EUR. For its part, the ECB said in its December policy update that a further 50 basis point rate hike was needed to bring down inflation. The tone and guidance proved firmer than the market had expected, which led to higher bond yields in the Eurozone which in turn helped the European single currency higher. Therefore, analysts at ING Bank recently said that the European Central Bank appears ready to promote a stronger currency for the euro, which is acting as a deflationary force.
For his part, Chris Turner, an analyst at ING, wrote in a recent research brief, “It is clear that the European Central Bank wants a stronger euro to help its battle against inflation, and he was telling at the European Central Bank’s press conference last week that the bank’s governor Christine Lagarde was Keen to highlight that the ECB will tighten for longer than the Fed, and “if the ECB is to succeed in raising the euro, the euro will need to rally against those major weighting currencies in the Euro Trade-Weighted Index.” The largest weights in this index are the US dollar (16%), the Chinese renminbi (14%) and the British pound (12%).”
According to Deutsche Bank experts the US dollar peaked in 2022.
The US dollar has strengthened for nearly two years in a row, as evidenced by the dollar index. The index mainly reflects the interest rate differential between the Fed and other central banks in the world, and has been falling sharply since October. After rising to 0.96 against the euro, the dollar reversed course. To be sure, the EUR/USD exchange rate remains negative throughout the year, but Deutsche Bank believes that the dollar has peaked and will gradually weaken in 2023.
EUR/USD forecast today:
- There is no change in my technical point of view.
- According to the performance on the daily chart, the price of the EUR/USD pair is still in a neutral position.
- The slope will be bearish if it moves towards the support levels 1.0570 and 1.0480, respectively.
On the other hand, according to the performance over the same time period, the breach of the resistance 1.0730 will be important for the strength of the bulls' control over the trend.
According to the performance on the 4-hour chart, it seems clear that the price of the EUR/USD currency pair has been in a slow upward trend in the past few months. Recently, it has been stuck near the bottom side of the ascending channel. The pair moved above the 25-day and 50-day moving averages. It has also formed a small downward channel that looks like a falling wedge pattern. Therefore, the pair is likely to witness an upward breakout in the coming days as buyers target the upper side of the channel at 1.0750. A drop below the bottom side of the channel at 1.0573 will invalidate the bullish view.
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