- The EUR/USD failed to sustain its recovery momentum following a setback caused by the remarks made by Lagarde.
- The Friday rebound’s performance is influenced by the prevailing downward pressure, which can be attributed to the sustained strength of the US Dollar.
- The upcoming week is poised to witness significant market events, including the release of EU inflation figures and the Federal Open Market Committee (FOMC) meeting.
The EUR/USD is poised to conclude Friday’s trading session with a downward trend, approaching the week’s lowest level around 1.0650. This can be attributed to strengthening of the US Dollar (USD) towards the end of the week, resulting in an overall increase in the broad dollar index.
At the Peak of the Rate Hiking Cycle, the ECB Devalues the Euro
The overnight deposit rate in Europe has reached 4% thanks to the ECB’s successful implementation of a dovish rate adjustment, in which the central bank raised its benchmark interest rates by 25 basis points.
The latest rate rise caused significant volatility in the financial markets, with the Euro (EUR) indicating a decrease in value after the announcement. This has happened because the European Central Bank has all but confirmed that the current rate-hike cycle has reached its end.
The European Central Bank (ECB) has indicated the potential for future rate hikes. However, ECB President Christine Lagarde tempered expectations by emphasizing a shift in focus towards determining the duration of current interest rate levels rather than the magnitude of future adjustments.
The market sentiment regarding the European Central Bank’s future rate hikes has wholly dissipated, with investors now foreseeing the initial rate reduction implemented by the European Union’s central bank in March of the upcoming year.
The economic calendar on the US side exhibited notable performance, resulting in consistent increments of the Greenback (USD) value, as the data from the United States consistently exceeded expectations.
The retail sales data for the United States in August surpassed expectations, registering a growth rate of 0.6% compared to the projected 0.2%. This figure also represents an increase from the previously revised upward value of 0.5%. The current state of the US economy exhibits signs of robustness, displaying resilience in its ability to dismiss apprehensions surrounding an imminent recession.
The narrative surrounding the “soft landing” phenomenon, which has exhibited a shortfall in market performance as of late, seems to be diminishing, as indications suggest that the US consumer segment is currently positioned in a favorable state of well-being.
Next Week, We Will Hear About EU Inflation and the US FOMC
The upcoming week will witness the release of EU inflation figures on Tuesday, specifically August’s Harmonized Index of Consumer Prices (CPI). The CPI is anticipated to align with the previous period’s data.
The latest inflation figure for the Pan-European region stood at 0.3%, and market participants expect a similar outcome. The persistence of inflation continues to be a significant concern, and a substantial deviation from expectations in the headline figure may prompt investors to seek refuge in safer assets.
The Federal Reserve (Fed) has been in the spotlight this week in the United States. The open market committee of the Fed is largely expected to keep the standard interest rate unchanged at 5.5 percent. The market, though, is ready for further rate hikes throughout the year as inflation worries persist.
The latest figures on unemployment claims in the United States will be public on Thursday. Ahead of the official US release, preliminary European Union Purchasing Managers’ Indexes (PMI) for manufacturing and services will be released on Friday.
Prospects for the EUR/USD From a Technical Perspective
The Euro is poised to conclude the trading week with a downward trend for the ninth consecutive time, reaching its lowest point in four months, slightly above the 1.0650 level. On Friday, there was a notable resurgence in the Euro’s performance, albeit temporarily, as it experienced a bullish recovery.
However, after this, the pair faced a reversal in momentum due to prevailing broader US Dollar flows, ultimately leading to a return towards the day’s initial opening prices.
There has been a downward trend in the daily candlesticks, with the average price now below the SMA. The 14-day index of relative strength (RSI) and the 9-day MACD histogram indicators are now signaling oversold circumstances. Therefore, market players will pay particular attention to these readings.
Below 1.0850, the 34-day Exponential Moving Average (EMA) is close to establishing a bearish crossing with the 200-day Simple Moving Average (SMA). The EUR/USD currency pair uses the downward-sloping 34-EMA as a resistance level, as seen by a series of dropping peaks and a subsequent price decline.