The EUR/USD Analysis: A Closer Look at the Market Trends
EUR/USD Initial Gains Fizzle Out
- EUR/USD reached a new high in 2024 at 1.1215 before retreating to 1.1130-1.1120.
- The US Dollar rebounded from year-to-date lows, prompting a shift in investor sentiment.
- Chinese-led risk-on rally loses momentum on Wednesday.
On Wednesday, EUR/USD experienced a surge to a fresh high at 1.1215, only to give up those gains and settle around the 1.1130-1.1120 range by the end of the session. This reversal followed a strong uptick on Tuesday, driven by news of additional stimulus from the PBoC.
Concurrently, the US Dollar Index (DXY) saw a notable recovery from 14-month lows near 100.20, as investors’ sentiment shifted, supported by a rise in US yields across various maturities.
Market Sentiment and Central Bank Actions
Market participants are pricing in further easing by the Federal Reserve (Fed) at upcoming meetings, reflecting expectations of a soft landing for the US economy. The Fed’s recent rate cut was not a response to panic, and the ‘dot plot’ suggests additional easing this year.
On the other hand, the European Central Bank (ECB) recently eased monetary policy due to concerns about inflation and economic conditions. While no rate cut is indicated for October, the ECB remains cautious about future actions, with a focus on returning inflation to 2% by 2025.
Future Outlook for EUR/USD
If the Fed continues to cut rates, the policy gap between the Fed and ECB may narrow, potentially supporting EUR/USD. However, the US economy’s expected outperformance of its European counterpart could limit prolonged weakness in the dollar.
EUR/USD Short-Term Technical Analysis
Further gains in EUR/USD may face resistance at 1.1214 and 1.1275, while support levels are at 1.1001 and 1.0881. The pair’s upward trend is expected to continue as long as it stays above the critical 200-day SMA.
On the four-hour chart, initial resistance levels are at 1.1214 and 1.1275, with support at 1.1121, 1.1083, and 1.1068. The RSI indicator suggests a bearish bias with a level below 47.
