The EUR/USD currency pair had a very choppy week, eventually settling down to around the 1.1500 level at the close. Deepening global trade tensions and the intensifying crisis in the Middle East were major drivers of exchange rate volatility. These factors contributed to a bearish sentiment among investors. On Wednesday, the Federal Reserve signaled another major shift in monetary policy. It failed to ignite the requisite bullish frenzy among market actors to send the pair soaring.
Technical indicators point to strong potential for upward momentum in the coming days. This is particularly the case if the pair manages to break through key resistance levels. Support and resistance keep analysts glued to key EUR/USD levels that will set the direction in the coming week’s time.
Market Sentiment Affected by External Factors
The EUR/USD experienced significant volatility over the week, as it was a clear signal of the greater market turmoil. Global trade tensions and the ongoing Israel-Hamas conflict are weighing heavily on overall market sentiment. In turn, operators are playing it a bit more conservatively. This has been a spectacularly bad environment for the euro, as investors consider how these tensions may impact economic stability.
Recent global shocks have shaken investor confidence, with repercussions on national and multinational businesses. As a result, the Federal Reserve’s decisions proved inadequate. The problematic announcement didn’t inspire enough bullish traders to push down the EUR/USD. This led a lot of people to start wondering just how effective U.S. monetary policy even is these days in today’s rapid, more complicated global economy.
As Mario Centeno, the former Governor of the Bank of Portugal put it in a recent paper discussing the wider economic consequences of such policies,
“We need a stronger economy to be compatible with 2% inflation, that’s my main position” – Mario Centeno
This optimism is matched by worry from a number of market actors about how sustainable this economic growth will be with persistent geopolitical threats.
Technical Levels Indicate Potential for Upside
From a purely technical analysis viewpoint, EUR/USD is still placed above key support. Near-term support comes in at 1.1470, with the 20-day Simple Moving Average (SMA) closely behind at 1.1435. If selling pressure picks up, then a bearish breakout may be seen. If this breakout sticks it should drive prices lower, test support in the 1.1350s mid-1.1300s.
Analysts now expect that EUR/USD will retest its yearly highs if it can move above the resistance at 1.1560. Such a development could see the pair heading up to retest the important 1.1700 resistance level. Bullish Daily chart shows a bullish bias, as technical indicators are curling up in positive territory.
Today’s fall from the annual high of 1.1631 represents the first step in a corrective drop. That’s good news, but it doesn’t mean a reversal of the trend. Buyers are eager to plunge back into the market and recapture their bullish sails EUR/USD. This surge seems highly probable, notably as the pair remains well supported above the bullish 20 SMA, at 1.1050 at the time of recording.
Long-Term Outlook Remains Bullish Despite Corrections
So, despite the recent USD strength, the long-term picture is bullish EUR/USD. The weekly chart adds that the pair has moved up and down within its range of last week. This trend underscores a troubling time of centralization. Technical indicators have retreated from overbought conditions, suggesting that a healthy pullback may facilitate a stronger advance once market conditions stabilize.
The 100 and 200 SMAs are starting to converge around 1.0830. This represents the end of the short term bullish trend for EUR/USD. The bullish 100 SMA is still climbing, recently crossing above the mildly bullish 200 SMA. This positive trend leads us to hope for a potential long term rebound.
As traders wade through this choppy market, many are paying close attention to major levels and macro economic news. Though near-term volatility can prove dangerous, those watching EUR/USD know that there will be bigger opportunities if bullish momentum can return.