EUR/USD Price Analysis – May 19, 2023
Daily Price Outlook
Today, the EUR/USD is trading in positive territory, with the price at 1.0794 USD. Over the past 24 hours, the EUR/USD has increased by 0.22%. The "Fiber," a nickname for the EUR/USD currency pair, witnessed a significant rise as market participants eagerly awaited the upcoming European Central Bank (ECB) bank statement and a speech by Federal Reserve Chief Powell.
These events are occurring amidst an overall improvement in risk sentiment.
On Thursday, European Central Bank Vice President Luis de Guidos stated that the ECB will continue to raise interest rates, despite tightening measures nearing their peak. According to de Guidos, most of the tightening has already been implemented, with only minor adjustments remaining to support the economy. However, he expressed uncertainty regarding the end of policy tightening.
Earlier this month, the ECB already reduced the pace of interest rate hikes, implementing a modest 25 basis point rate increase. Nevertheless, the central bank hinted at the possibility of further tightening. These comments from Luis provided some strength to the euro (EUR) and contributed to gains in the EUR/USD currency pair.
EUR investors will closely watch for the release of the ECB Bulletin, which may provide additional insights into inflation and the central bank's interest rate decisions.
In light of recent hawkish comments from various Federal Reserve (Fed) officials, the optimistic outlook surrounding a potential resolution to the US debt ceiling issue has contributed to the continued increase in US Treasury bond yields. Currently, the US 10-year bond yield is trading at $3.642.
This development has also had a positive impact on the US dollar, although it is currently facing pressure ahead of the speech by US Fed President Jerome Powell.
On the US front, the US Dollar Index (DXY) remains around the 103.35 level in a lackluster Friday session. The subdued market activity can be attributed to ongoing challenges faced by the US dollar and prevailing market sentiment.
However, the DXY receives support from concerns regarding a potentially hawkish stance within the Federal Reserve and optimism surrounding the avoidance of a US default. Additionally, the upcoming speech by US Federal Reserve President Jerome Powell is keeping the DXY under pressure on Friday.
In a significant development, the US Trade Representative's office has revealed that the US and Taiwan have successfully concluded the initial phase of their '21st Century' trade initiative.
This agreement encompasses various aspects such as customs, border procedures, regulatory practices, and support for small businesses. The timing of this announcement is noteworthy as it precedes the upcoming meetings between China's Commerce Minister, the US Trade Representative, and the US Commerce Secretary.
These discussions hold the potential to influence the ongoing tensions between the US and China and consequently impact the trajectory of the US dollar.
In the coming days, President Joe Biden is expected to make a crucial decision to prevent a default before Sunday. The trajectory of the US dollar will largely depend on the outcome of Federal Reserve Chair Powell's defense of the recent hawkish stance adopted by the central bank.
If Powell successfully defends this position, it may contribute to the upward momentum of the US dollar. Conversely, a failure to reach a deal could spark a renewed decline in the value of the US dollar.
EUR/USD – Technical Outlook
The EUR/USD currency pair is currently experiencing significant bearish movement, trading around 1.0760 levels after a 0.64% decline yesterday. On the daily timeframe, it has already reached the 50% Fibonacci retracement level at 1.0800, and now it is heading towards the next Fibonacci level of 61.8% at 1.0736.
The presence of three black crow candlesticks further supports the potential continuation of the downtrend. However, it remains to be seen if the EUR/USD can hold above the 1.0736 level, as a break above this could indicate a possible trend reversal and present a buying opportunity for the upcoming week.
Conversely, if selling pressure persists and the downtrend continues, the pair may break below the 61.8% level and target the 76.8% Fibonacci retracement level at 1.0645. Therefore, it is crucial to monitor the 1.0740 level as a decisive factor for potential price movements today.
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