EUR/USD Struggles to Sustain Upside Momentum
Despite recent gains, the EUR/USD pair faced resistance around the 1.0600 region, resulting in a downward trend on Tuesday. The resurgence of geopolitical tensions bolstered the US Dollar, leading to a decline in the Euro’s value. Here’s a closer look at the factors influencing this currency pair:
US Dollar Strength and Geopolitical Jitters
- The US Dollar saw modest gains amid geopolitical uncertainties and a flight-to-safety sentiment.
- The Dollar Index (DXY) hovered around 106.30, supported by declining US yields and demand for safe-haven assets.
Federal Reserve’s Monetary Policy
- The Fed recently cut interest rates to 4.75%-5.00% to address inflation concerns.
- Chair Jerome Powell indicated a cautious approach towards further rate cuts despite inflation progress.
European Central Bank’s Rate Adjustments
- The ECB lowered its deposit rate to 3.25% in October but has refrained from further adjustments.
- Waiting for more data before making additional policy changes.
Inflation and Trade Policies
- The Eurozone’s Harmonised Index of Consumer Prices showed a 2.0% increase in consumer prices in October.
- Possible trade policies by the Trump administration could impact inflation in the US.
Analysis and Outlook
Despite recent setbacks, the EUR/USD pair may face further downward pressure towards the 1.0495 and 1.0448 support levels. Resistance lies at the 200-day SMA at 1.0862 and the November high at 1.0936. The technical outlook suggests:
- Immediate resistance at 1.0653 and 1.0726.
- Support levels at 1.0495 and 1.0448.
- RSI indicating a potential reversal in the short-term trend.
While the Euro’s net short positions have decreased, caution remains as commercial traders turn net sellers. Monitoring key levels and market sentiment will be crucial for navigating the EUR/USD pair in the coming days.