I anticipate that the EUR/USD will likely stay within a short-term trading range of 1.0720 to 1.0900. It's interesting to note that rates below 1.08 don't necessarily indicate euro weakness but rather recent dollar strength. The euro has shown stability against a broad basket of currencies, while the dollar has been appreciating. The trajectory of the euro's recovery hinges on various factors, including how well the eurozone economy bounces back and the timing and extent of interest rate changes.

Recently, the Federal Reserve dismissed the possibility of a rate cut, contrasting with the European Central Bank's mixed signals on the timing of its first rate cut. Various ECB officials have expressed differing views, with some, like Spanish ECB Governor Guindos, expressing confidence in eurozone inflation returning to target soon, and others, like Croatian ECB Governing Council member Vujčić, suggesting a cautious approach with no rush to cut rates.

The U.S. market's strength, highlighted by last week's employment data release, implies that unless signs of weakness emerge, the USD is likely to remain the more attractive currency in the pair. However, it's essential to recognize that the USD's strength has its limits, especially unless there are escalations in geopolitical tensions. Ongoing developments in the Middle East will continue to draw attention. The release of consumer price data for January, starting with German CPIs and followed by American CPIs, will be crucial. Any surprises in the data, especially if similar to the higher-than-expected previous CPI, could influence the Federal Reserve's stance on interest rates.

From a technical standpoint, the EUR/USD has been following a downward trend. Breaking through key indicators like the 200-day line, the January sideways trend channel, and the 100-day line at 1.078 has resulted in a three-month low of 1.0720. While the pair hasn't directly breached this level, a further test and possible breakout seem likely in the medium term. Short-term expectations include a correction towards the 38.2% and 61.8% Fibonacci levels, at 1.08116 and 1.0883, respectively. Additional resistance levels on the upside are at 1.0900 and 1.1040, while downside support is at 1.0720 and 1.0670.

EURUSD Aiming for 61% of Fib Level

Feb 22 2024

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