The currency pair EUR/USD was under pressure selling on Monday, starting the week on a sour note. The modest uptick in the US Dollar (USD) contributed to this decline, as traders reacted to developments surrounding the US-China trade deal, which has alleviated recession fears in the US. This new arrangement in effect pulled down the value of the Euro relative to the Dollar. Consequently, the EUR/USD pair currently sports a bearish bias.
As trading opened back up, EUR/USD had a hard time gaining any traction, unable to hold above the important level of 1.3300. The pair’s current performance is indicative of wider market sentiment, and bearish technical signals, including a head and shoulders formation, point to more declines ahead.
Market Dynamics and Economic Influences
Seemingly the key factor in shaping market sentiment, the US-China trade deal came through. The deal was enough to calm fears of an incoming recession in the U.S. In both cases, it strengthened the USD and most directly affected the EUR/USD exchange rate. Confidence-inducing trade news about the state of the US economy has contributed to bolstering Dollar strength. Consequently, this context has turned toxic for the Euro.
According to market analysts, “The recent trade developments have shifted trader sentiment significantly, favoring the US Dollar and putting pressure on EUR/USD.” This sentiment is underscored by the ongoing economic dynamics that influence the Eurozone’s economy, particularly data from its largest economies: Germany, France, Italy, and Spain. Together, these countries make up about 75% of the Eurozone’s economic activity.
The same is true with the Eurozone’s economic health being a key factor with whether the Euro is strong. Higher interest rates in the Eurozone compared to its peers usually support the Euro. Prevailing market dynamics from higher interest rates to inflation suggest that the USD’s strength is winning out in the moment.
Technical Analysis and Trading Outlook
From a technical standpoint, EUR/USD now sees first resistance at the 1.1250 area. If it does manage to pierce through this resistance, there is room for the pair to aim for the psychological barrier of 1.1300. But any rally would have to face strong resistance around 1.1250.
If EUR/USD resumes its downward path, it could pull towards the 1.1110-1.1100 region. Traders and analysts alike consider a close below the 200-period Simple Moving Average (SMA) on the 4-hour chart as pivotal. Such a move would only open the door to greater losses and further serve to weaken the Euro against the Dollar.
The EUR/USD oscillators are solidly bearish. They are even more importantly displaying fledgling negative traction on the daily chart. This ever-changing technical landscape makes it imperative that traders stay on their toes as they walk through this tricky market.
“The recent fluctuations highlight how sensitive EUR/USD is to both economic news and technical levels.” – Market Analyst
Trading Volume and Market Position
Because of this, EUR/USD continues to be the most actively traded currency pair in the world. It represents an average of about 30% of all foreign exchange transactions worldwide. In 2022, it was the clear winner, making up an astounding 31% of all foreign exchange market trades. The average daily turnover jumped above $2.2 trillion.
The Euro is the official currency of the 19 countries that make up the Eurozone. Economic data from any of the four major economic engines in this group largely drives its value. Such information can influence trader behavior and dramatically move currency prices.
The Euro has some long-term advantages, including high interest rates compared to other leading countries in the Eurozone. Looking at recent market activity, sellers are clearly in control of the EUR/USD battlefield at the moment.