The EUR/USD Exchange Rate Is Declining
The EUR/USD exchange rate experienced a significant decline on Thursday, falling below 1.0650 after a strong performance on Wednesday. This sudden shift has left the pair fragile, and analysts predict that additional losses may be on the horizon.
The root cause of this decline can be traced back to the release of the latest inflation data by Eurostat, the statistical office of the European Union. The HICP, the preferred inflation metric of the European Central Bank (ECB), rose to 5.6% year-on-year in February, up from 5.3% in the previous month.
This increase exceeded market expectations and has caused concerns among investors about the ECB’s ability to control inflation. Furthermore, the core HICP, which excludes volatile items like energy and food, rose by 0.8% month-on-month, far surpassing the expected increase of 0.4%.
This unexpected rise has further fueled concerns about inflationary pressures and their potential impact on the Eurozone economy. Given the fragile state of the EUR/USD pair and the growing concerns about inflation, many investors are adopting a cautious approach to trading. However, the situation is still evolving.
Euro Struggles to Gain Investor Interest Despite Higher Inflation
Despite the higher-than-expected inflation rate, the euro needs help attracting investors. Many were surprised by the inflation data, given the stronger-than-predicted inflation readings from Germany, Spain, and France earlier in the week.
Despite this, the European Central Bank’s President, Christine Lagarde, has reiterated that a 0.50% rate hike for March remains firmly on the table if inflation keeps rising. However, she added that they are still determining the peak.
The US labor department is slated to publish initial weekly job claims data. Many investors are expecting these numbers to stay below 200k. Despite the tightening of labor conditions in the US, the economy has shown signs of resilience, and investors are hopeful that this trend will continue.
However, market participants remain cautious, given the unpredictable nature of the global economy. While the economic indicators are encouraging, many factors could still impact the markets. As such, investors are adopting a wait-and-see approach, closely monitoring the situation and waiting for additional data to inform their decisions.
Technical Analysis of the EUR/USD Pair
The EUR/USD pair trades near the 1.0620 level from a technical analysis perspective. The 20-day Simple Moving Average (SMA) and 50-day SMA converge with the top limit of the broken downward-trending regression channels from February. This convergence of technical indicators suggests that this level is a key support and resistance area.
If the pair dips below this level and uses it as a resistance level, sellers could come into play, triggering a lower move toward the 1.0600 level, with the 1.0560 level as the next potential target. The Fibonacci 23.6% retracement in the downtrend and the 100-day SMA is also fully in line with this resistance level.
If the EUR/USD pair breaks through this resistance level, the next resistance levels to watch out for are 1.0701 and 1.0720 at the 38.2% retracement. However, given the current fragile state of the pair and the uncertain economic landscape, it’s difficult to predict the exact path the pair will take.
As such, market participants should remain vigilant and monitor the situation closely for signs of a potential breakout or reversal.