For the third day in a row, the price of the EUR/USD currency pair is exposed to selling operations that pushed it towards the support level 1.0455 at the time of writing the analysis by the US Federal Reserve Bank.
There are no major reports due from the Eurozone this week, so EURUSD may take cues from US data. Leading inflation indicators, including the ISM Services PMI and PPI producer price reports, are produced. Stronger-than-expected price pressures may keep traders optimistic that the US Federal Reserve will delay its pivot and hike another 0.75% at this month's meeting. On the other hand, the weak data may confirm that the US Federal Reserve will shift to a more dovish stance and slow its rate increases to just 0.50% this time around.
Risk sentiment could be bearish for the dollar in the near term as well, with China reportedly easing some coronavirus restrictions and reviving hopes of a soon reopening.
The European Central Bank is set to issue more rate hikes than previously expected, a new analysis from Italy's Intesa Sanpaolo shows, a development that should keep the euro strong relative to the dollar. Accordingly, Intesa Sanpaolo wrote to clients that it had revised higher expectations for the levels of the ECB's key interest rates in response to better-than-expected data indicating that the recession in the eurozone will be slower than previously expected.
This in turn signals an upgrade in the bank's forecast for the EUR/USD exchange rate for the coming months, although analysts warn that the rally may now reach its limits in the near term. In an earlier analysis released in September, Intesa Sanpaolo economist Asmara Jamalieh wrote that the eurozone could see significant weakening in growth in the closing stages of this year with a potential for recession between the fourth quarter of 2022 and the first quarter of 2023.
According to the technical analysis of the currency pair:
- EUR/USD is heading upwards in its hourly time frame, forming a new ascending trend line that has been stable since late November.
- The price may be at another lower support level, which is in line with the Fibonacci retracement levels.
- As the 61.8% Fibonacci level lines up with the trend line and a key psychological mark at 1.0400, as well as a previous resistance area.
- A stronger decline could indeed find buyers at the 38.2% Fibonacci retracement near the 100 SMA, or the 50% level that lines with the 200 SMA dynamic support.
Moving Averages
The 100 SMA is above the 200 SMA to confirm that the general trend is still bullish and that the support is more likely to hold than to be broken. In this case, EUR/USD may soon make its way to the swing high around 1.0600 or higher. Stochastic is in the oversold zone to reflect exhaustion among the sellers, so a shift to the upside means the return of bullish pressure. The RSI has a bit more room to head lower before reaching the oversold territory, so the correction may continue to occur.
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