The EUR/USD currency pair remains trapped below a flattening 20-week Simple Moving Average (SMA) at 1.1674. Market participants are still trying to process the full implications of the Fed’s extraordinary recent actions. The euro trades still comfortably above the rising 100-week and 200-week SMAs, currently located at 1.1016 and 1.0836. Resistance at the 20-week SMA is capping momentum to the upside. Consequently, traders are bracing for increased volatility in either direction in the near term.
October ended on a rickety note for EUR/USD, that just managed to close above a three month low of 1.1522. The market is getting a confusing, whipsawing signal between recessionary economic data and central banking indifference to recession. Surprisingly, given all of this, the path of least resistance appears to be tilting toward the downside.
Technical Indicators Signal Caution
The technical landscape for EUR/USD is clearly defined and dominated by moving averages acting on both the support and resistance side. Immediate upside potential is limited by the 20-week SMA at 1.1674. To get bullish sentiment in the euro running hot, we’d want to see a decisive weekly close above this level. The duo’s stance underneath the 20- and 100-day SMAs shows that sellers still have a hold on the market.
Dynamic support for EUR/USD is currently anchored first at the 100-week SMA, which was recently tested, closely followed by the 200-week marker. Unless the pair can close above the 1.1674 resistance area, it will probably remain stuck in the range. If so, the pair might slowly sink to the next solid support level at 1.1016.
“There’s a possibility that it would make sense to be more cautious.” – Jerome Powell
Market analysts feel that the EUR/USD must clear early resistance at 1.1622 to begin a meaningful recovery. They warn that an even greater battle lies ahead at 1.1665. Until these targets are reached, the duo may risk a third re-test of the penetrating 200-day SMA at 1.1314. This constant back and forth battle is indicative of larger market uncertainties, especially with the U.S. monetary policy.
Fed Policy and Market Implications
Jerome Powell, Chair of the Federal Reserve, recently suggested that a new humility may be in order when it comes to monetary policy. His comments seem to imply that there would be room to pause rate increases in light of changing economic circumstances.
“I’m not committing to that, I’m just saying it’s certainly a possibility that you would say, ‘we really can’t see, so let’s slow down.’” – Jerome Powell
These statements have led to increased speculation about the future trajectory of interest rates and their impact on the dollar’s strength against the euro. As traders continue to digest these developments, sentiment surrounding EUR/USD could become increasingly volatile.
The pair’s momentum indicator continues slightly negative, ebbing back and forth across its midpoint without establishing a clear trend. The weekly RSI is level and directionless, stuck around the key 50 level. This indicates a potentially turning point in market momentum.
Future Prospects and Market Sentiment
Looking to the future, negative market sentiment towards EUR/USD will be driven by technical hurdles. Beyond that, the underlying forces stemming from central bank policies will be critical. If we can’t get above important resistance levels, we can expect more downside. This might lead us to a race to the bottom on support.
Euro-focused traders will want to note daily closes above notable resistance as confirmation for bullish breakouts. Only then can they pump fresh bullish euphoria reinvigorating during every future recovery effort. Ongoing pressure beneath these levels could force actors to begin re-evaluating their plans and negotiating stances.