EUR/USD Continues Weekly Recovery Towards 1.0870

EUR/USD has been on a winning streak, marking its third consecutive daily gain and surpassing the key 1.0800 level. The pair’s upward momentum has brought it close to the crucial 200-day SMA around 1.0870.

US Dollar Weakens Despite Positive Economic Data

Surprisingly, the US Dollar (USD) has been losing ground despite strong ADP employment figures and resilient GDP data. The US Dollar Index (DXY) has been trending downwards for the third consecutive day, testing multi-day lows below 104.00.

Factors Driving Market Movements

  • US yields show indecision, while 10-year bund yields hit multi-week highs around 2.40%.
  • Expectations of a Fed rate cut in November are growing, but some officials remain skeptical.
  • The ECB recently cut rates by 25 basis points, with cautious comments about future policy decisions.

Analysis of Central Bank Decisions

The European Central Bank (ECB) reduced rates as expected, but officials are taking a wait-and-see approach to further cuts. ECB President Christine Lagarde emphasizes careful consideration amid evolving economic conditions.

Policy Divergence Within ECB

There are differing views within the ECB regarding future rate cuts. While some members advocate caution and gradual adjustments, others are concerned about inflation falling below the target level, which may necessitate more aggressive cuts.

Impact on EUR/USD

The trajectory of EUR/USD will be influenced by broader economic factors, with the US economy currently outperforming the eurozone. The upcoming US election and potential policy shifts could further impact the exchange rate.

EUR/USD Short-Term Outlook

If EUR/USD continues to decline, it may test support levels at 1.0760 and 1.0700 before hitting the June low of 1.0666. On the upside, key resistance levels include the 200-day SMA at 1.0868 and higher moving averages at 1.0934 and 1.1021.

Technical Analysis

The four-hour chart shows signs of a breakout from consolidation, with support at 1.0760 and resistance at 1.0871. The relative strength index (RSI) is above 62, indicating a potential shift in momentum.

Overall, the market is reacting to central bank decisions and economic data, driving movements in the EUR/USD pair. Investors should monitor key levels and indicators for potential trading opportunities.

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