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Asset Watch
Thursday, August 17, 2023
The EUR/USD price retreated recently on the upsurge in the US dollar. At the start of this week, the pair fell to a multi-week low at 1.0875. The principal driving force behind the strengthening of the US dollar is the diminishing anticipation of a Federal Reserve interest rate cut in the first quarter of the next year, and that the rate cut cycle is likely to start in the second quarter of 2024. In other words, the US interest rates are likely to stay high for longer.
On the other side, expectations now are stronger that the ECB is likely to hike rates in the September meeting by 25bps due to the big divergence between the current European inflation levels (5.3% for July) and their 2% target. However, market expectations suggest that the European Central Bank might cease rate hikes soon (according to inflation levels performance) subsequently transitioning to cutting rates in the first quarter of the following year. This strategic shift is driven by concerns over the detrimental impact of elevated interest rates on the European economy, coupled with the potential of entering a stagflation crisis.
Furthermore, the disappointing performance of the Chinese economy has also contributed to risk-off mode and strengthening the US dollar against major currencies.
Chart source ADSS Platform
Last week the EUR/USD price closed below the 50-day simple moving average and at the start of this week the pair broke below the bullish trend line originating from the June 6 low at 1.0667 indicating that bears were in charge. A daily close below 1.0873 may encourage traders to press towards 1.0730. That said, the support levels located at 1.0831 and 1.0760 should be watched closely.
On the other hand, failure in closing below 1.0873 reflects a weaker bearish momentum and that could entice some traders to rally the price towards 1.1110. However, the resistance levels residing at 1.0996, 1.1020 and 1.1060 should be monitored.
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