The EUR/USD currency pair closed the week just below the 1.1700 level, pointing to potential volatility in the days and weeks ahead for forex traders. The pair has maintained a very bearish outlook ever since the pair fell below its 20 Simple Moving Average (SMA). Now, the SMA is providing dynamic resistance in the 1.1730 area. All that momentum is changing now with the US Dollar (USD) skyrocketing. This upward move is primarily driven by positive economic indicators and recent statements by Federal Reserve (Fed) Chair Jerome Powell.
With the Euro under pressure from a strengthening dollar, the market watches to see how important support levels hold up. The 100 SMA is currently at this area, around 1.1580. In the event of a bearish breakout, we might witness a retest of the July low at 1.1391. The recent drop represents a retreat from the annual high of 1.1918 hit in mid-September. Market participants are clearly in a phase of active position smoothing and recalibration, as they react to an economy that is changing under them.
Economic Indicators and Their Impact
The recent strength of the US Dollar can be partially explained by a string of positive indicators out from the US economy. Over the month, the August Personal Consumption Expenditures (PCE) Price Index figures jumped 0.3% from July—the biggest monthly increase since January. This increase matched the market consensus exactly. This one-month statistic further underscores the recent stabilization of inflation. Core annual inflation remained at 2.9%, the same as July’s reading and as expected.
In August, Durable Goods Orders jumped by a solid 2.9%. That’s quite a reversal from an estimated 2.6% drop last month. This figure blew out analysts’ expectations, which were for a drop of 0.5%. Robust economic statistics continue to highlight the underlying strength of the US economy. This optimistic perspective continues to stoke bullish sentiment for the USD.
As market participants continue to process these news, market players are careful with the next reports that continues to rock the oil’s market direction. The US will release its September ISM Services Purchasing Managers’ Index (PMI) and Nonfarm Payrolls (NFP) report this Friday, which may provide additional context on economic performance and labor market strength.
Technical Analysis of the EUR/USD Pair
In light of the recent bearish movement, key levels are being watched carefully by technical analysts for the EUR/USD pair. With the failure to hold above this key 1.1700 level, the outlook for its further direction is in question. The nearest resistance zone is located at 1.1730. This level is in line with the 20 SMA, which has been an impenetrable stop for upward progress.
If the bearish momentum continues, traders may see the pair testing lower support levels. They need to watch closely for a break above the 1.1580 level, with the 100 SMA. A solid break under this mark would likely bring a test of deeper support at 1.1391 into play. This support point was adopted back in July. In that case, participants on the market will seek evidence of stabilization or continued deterioration.
Alternatively, for EUR/USD bulls, a rally and close above the level of 1.1730 will likely indicate momentum with conviction. Keep an eye on the resistance point at 1.1830 and possibly extending up toward the yearly high near 1.1920. How these three technical levels interact will be key to determining the pair’s direction from here. Look for big changes in the next few weeks.
Market Sentiment and Future Outlook
Sentiment on the EUR/USD pair is decidedly mixed as market participants factor in both the fundamental landscape and technicals. This picture of the recent strength of the USD should be a concern for the Euro. Other economic factors within the Eurozone are piling on economic pressure.
Fed Chair Jerome Powell’s recent comments regarding interest rates and inflation have provided a clearer picture of the Fed’s stance moving forward. Meanwhile, the Federal Reserve is simultaneously expressing enormous confidence in the ongoing economic recovery. As a result, the USD is likely to stay strong against other currencies, including the Euro.
Traders should be on their toes as they digest the next slate of economic releases. They have to look ahead at how changing geopolitical developments shape market conditions. Get ready for a whole new level of chaotic volatility in currency markets and financial markets more generally in coming weeks. We have some noteworthy data releases ahead such as ISM Services PMI and NFP report.