The EUR/USD currency pair is seeing stronger bearish pressure after a rejection at 1.1740 earlier this week. After a five-day run of gains, the tech went on to double down its descending moves from Monday’s peaks of 1.1735. As the market approaches the opening of the U.S. session today, EUR/USD has since fallen to just under 1.1630. This decline represents an important turn of the tide.
Today’s movement in the EUR/USD pair is consistent with today’s Eurozone inflation data. In August, inflation rose to 2.1% year-over-year. This positive advancement has added to the bad news already causing serious bearish sentiment around the Euro and the much stronger U.S. dollar itself. Core Consumer Price Index (CPI) for the Eurozone—which excludes energy and food—has remained unchanged at a 2.2% y-o-y rate. This continued stability only compounds all the other complexities facing the currency pair.
Technical Challenges for EUR/USD
The EUR/USD exchange rate is continuing to look for direction. It continues to be stuck in a wide continuation pattern of roughly 150 pips, which has contained price action for nearly all of August. Fundamental factors and technical factors are merging and creating an ominous challenge for bullish traders. This descending trendline resistance is currently located at 1.1730 and 1.1740.
Confirmation below the 1.1740 level will of course increase the odds of a move lower, potentially opening the floor toward the late-July lows found near 1.1790. As recent pressures on the market underscore, getting there is growing more complicated by the day. Traders are watching this resistance battleground closely for any inability to break above, which would likely result in more descending.
The bearish outlook is still strong, but there is major support for EUR/USD bears at the bottom of the monthly range. This support is seen at 1.1575 to 1.1590 area. The 50% Fibonacci retracement level from the bullish August run is 1.1560. This price point represents the first opportunity for relief below the recent low from August 5.
Economic Indicators Impacting EUR/USD
Looking ahead, market participants continue to closely watch the economic fundamentals. They’re clearly most focused on the releases of data expected to change the dynamics of EUR/USD trading. Key among these is the U.S. ISM Manufacturing Purchasing Manager’s Index (PMI), due out later today. The PMI is a key economic activity barometer and would be one of the most important to move market sentiment on the U.S. dollar.
Market participants are looking forward to next week’s Federal Reserve monetary policy meeting. The same can be said for the very short-term data point they are focused on. Speculative anticipation of future interest rate changes may further boost volatility in the EUR/USD market. Investors are anxious to see how these choices will shape future market environments.
On the Eurozone side, European Central Bank (ECB) President Christine Lagarde has provided additional support for the Euro in recent statements. Together, her comments suggest a surprisingly cautious but supportive approach toward monetary policy in today’s economic climate. In a recent speech, ECB board member Isabel Schnabel strongly signaled her agreement with this position. She echoed the point that interest rates are now “mildly accommodative,” a factor that shapes traders’ views on EUR/USD.
Cross-Currency Comparisons
This is why the Euro is struggling against the U.S. dollar. The dollar’s strength is shown comparatively to other currencies, particularly the British Pound. EUR/USD pair exemplifies this trend. Recent price action in EUR/USD pair highlights this phenomenon. Cross-currency comparisons provide unique perspectives on exciting market developments.
The Euro’s strength vs competing currencies would go a long way to keep interest in EUR/USD trades. This is significant, particularly in light of current bearish market pressures. As we saw last year, ongoing developments in the Eurozone and U.S. economies will greatly influence how long this relative strength lasts. Monitoring these developments closely will be critical.
Traders are constantly working within this intense reality. They’re always on the lookout for signals that could suggest changes in sentiment or in the market’s direction. Economic indicators and technical factors are converging in dangerous ways. It is their collective influence that will set the tone for whether EUR/USD can achieve another wave of upward momentum or further extend its recent slide.