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Asset Watch
Wednesday, August 23, 2023
Today, the EUR/USD has printed 1.0872 a multi-week low, and the pair may continue to fall further due to increasing indications that the European economy might be heading toward a recession caused by the tight monetary policy from the European Central Bank to tame high inflation levels. The ECB hiked the negative European rates from below zero levels to 3.75%.
The European PMI flash data of August showed that the service sector index dropped below the 50 level for the first time in 2023, while the industrial sector index remained in the contraction area. Despite a decrease in the European inflation rates, remain relatively high and significantly away from their 2% target. This situation suggests that the European Central Bank might continue hiking rates by 25 basis points in the upcoming September meeting.
Conversely, the US dollar’s value has stabilized as the market awaits the speech of the Federal Reserve Chairman at the end of the week however, it is not widely expected that this speech will come with any surprise to the markets. Hence, investors may prefer to wait for the US economic data (NFP and Inflation reports of August) before pricing in any potential rate hike in the FOMC meeting of September.
Chart source ADSS Platform
On August 11, the EUR/USD resumed its downtrend move and broke below the bullish trend line originating from the May 31 low at 1.0635. Currently, the pair moves in the trading zone between 1.0873 – 1.0730 and could be on the way for a test of the low end of that zone. A daily close below the low end could encourage traders to send the price even lower towards 1.0559. That said, the support levels located at the 200- day simple moving average, 1.0760, 1.0657 and 1.0629 should be watched along the way.
On the other hand, a daily close above the high end of the mentioned trading zone may entice some traders to rally the price towards 1.1020. However, the resistance levels residing at 1.0926 and 1.0996 should be kept in focus.
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