The EUR/USD currency pair has been on a remarkable bearish run, adding to the losses for the third straight day this week. The set, the world’s most closely traded, showed a drop of about 0.10%. This decrease happened as the US Dollar became stronger on the back of increased economic signs. A strong Purchasing Managers Index (PMI) report released by the Institute for Supply Management (ISM) and a solid jobs report contributed to the dollar’s appreciation, leading to a technical deterioration in the EUR/USD’s performance.
At Wednesday’s market close, EUR/USD was capping below the very important 1.1700 level, a clear indication of the traders’ bearish mood. At the latest exchange rate of 1.1677, a daily close under the long term key psychological mark looks likely. While experts say we should celebrate this momentum, there is apprehension about the possibility of continued short-term declines.
Technical Analysis of EUR/USD
The technical backdrop for EUR/USD, as it lingers just below key resistance levels, continues to look bearish. The pair has slipped below the 1.1700 level, which is key for avoiding a bearish continuation. If the bullish trend is to carry on from here, EUR/USD bulls must take control of the 20-day Simple Moving Average (SMA). This bombshell proviso is presently capped at 1.1733. A break of this level would open the way towards achieving 1.1750 and possibly trending to the 1.1800 level.
Market analysts are looking on very important support levels very closely too. The next major support is found at the 100-day SMA, currently at 1.1663. More support can be found at the 50-day SMA, currently at 1.1640. The 200-day SMA is another important level as well at 1.1561. Traders must be cautious of these numbers as they continue to adjust to today’s market landscape.
EUR/USD continues to be a key interest to world traders, making up for an average of 30% of all currency trades. In 2022, this number was even higher at 31%, with a phenomenal average daily turnover of over $2.2 trillion. The currency pair’s liquidity and popularity further highlights its importance in international finance.
Impact of US Economic Data
Recent economic releases out of the U.S. have been critical to guiding the ups and downs of market expectations. Similarly, the US Dollar Index (DXY) shot up from 52.6 to 54.4, blowing analyst estimates of a jump to 52.3 out of the water. This jump is a stronger dollar story fueled by a slew of positive economic data that points to resilience in the US economy.
Of particular interest in the employment subcomponent of the PMI, it jumped from 48.9 to 52.0. This increase marks a move back towards growth. This unexpected development would be a big relief for Federal Reserve officials. That would be good news indeed, signaling that job creation is finally getting some traction in this economy. The dollar continues to be a magnet for global investors. It has relatively high interest rates relative to other major currencies, which makes it an attractive, stable investment.
Going forward, all economic data will remain a key focus for market participants. US set to close out with December’s Challenger Job Cuts and Initial Jobless Claims to come. These reports will provide perspectives on key labor market trends and their relationship with a more equitable economic recovery.
Eurozone Economic Landscape
Even though US data has reigned supreme over the past couple weeks, it remains important to watch the economic landscape here at home in the Eurozone. The four biggies—Germany, France, Italy, and Spain—together make up nearly 75% of the Eurozone’s economy. Recent macroeconomic releases from each of these countries will be equally important in the euro’s strength vs. the dollar.
The analyst community is understandably going to be tuned in to any major upcoming data releases that will begin to shape investor sentiment to the euro. Factors such as inflation rates, employment statistics, and industrial production figures will significantly influence the euro’s valuation in relation to the dollar.