The Euro Struggles: Short-term Bulls vs Long-term Bears
EUR/USD Bounces off 2-Year Lows. Short-Lived Move or Something More?
by Bogdan Giulvezan
Europe’s single currency is trying to rally after reaching a nearly 2-year low earlier this week; a series of speeches from central bank heads could provide more clues about EUR/USD’s next move.
The pair is in a long-term downtrend but a lot of the recent decline was caused by the upcoming Fed rate hike, which would be the first in a very long while, as well as expectations for at least 75 bps hikes across the May and June meetings. According to CME’s Fedwatch tool, the chance for such hikes to happen is close to 90%.
However, many of these potential rate increases are already priced into the market, meaning that the US Dollar may struggle to make additional advances against the Euro and its other counterparts. Depending on how aggressive the Fed’s policy is and further developments in the war for Ukraine, we could see a resumption of the downtrend, or a more significant rally.
Key Events for the Week Ahead
Monday at 4:00 pm GMT, Fed Chair Powell will speak at the National Association for Business Economics Annual Economic Policy Conference on the topic of the economic outlook. Tuesday at 1:15 pm GMT, ECB President Lagarde will speak at the Bank for International Settlements Innovation Summit on the topic of a potential digital Euro and the future of money.
Wednesday at 12:00 pm GMT, Fed Chair Powell will participate in a virtual panel discussion at the same Summit. The discussion is titled “Emerging Challenges for Central Bank Governors in a Digital World” and could provide clues about future monetary policy. These appearances have the potential to trigger bursts of volatility, thus should be treated as high-impact events.
Thursday at 9:30 am GMT, the German Manufacturing and Services PMIs come out, showing the opinions of purchasing managers about business conditions and the overall health of the respective sectors. The impact is usually medium it could be greater if the actual numbers differ a lot from expectations. At 1:45 pm GMT, the U.S. versions of the same indicators will be released.
Technical Outlook – EUR/USD
The pair touched 1.0805 on March 7 and has been moving higher ever since, currently trading at 1.1060. It has re-entered the long-term bearish diagonal channel and it may be headed for the upper boundary of the said pattern.
The RSI is moving higher, coming from oversold territory and the MACD recently performed a bullish cross, but while these are bullish signs, we should always remember that indicators are derived from the price itself, so their ability to predict the future is limited.
The levels to watch are 1.1175, the 50-day Moving Average, and the upper barrier of the channel as resistance, while support sits at 1.0800 – 1.0775. The speeches mentioned above, as well as the Ukrainian war, will have an impact on price action during the upcoming week and beyond.
