EUR/USD Price Analysis – Aug 22, 2023

Daily Price Outlook

The EUR/USD currency pair managed to gain positive momentum for the second consecutive day on Tuesday, climbing back above the 1.0900 mark during the Asian trading session. However, the recent upward movement can be attributed to a statement made by the European Central Bank (ECB) Chief Economist, Philip Lane, on Friday. He mentioned that the Euro Zone economy is expected to continue growing and is unlikely to face a significant or prolonged recession.

Lane's remarks led to a reduction in the inversion of the German yield curve and supported the possibility of the ECB implementing further policy tightening. This, in turn, has provided a strength to the shared currency and contributed to the EUR/USD pair gains. Moreover, the minor weakness in the US Dollar has also contributed to the favorable conditions for the EUR/USD pair.

Factors Influencing the USD and Their Impact on the EUR/USD Pai

The USD Index (DXY) is currently lower than its highest point since July 12. This is because traders are expecting the Federal Reserve to pause its trend of increasing interest rates in September. However, the US economy is still showing strength, leaving room for the possibility of another slight rate increase of 0.25% by the end of this year. This potential rate hike could prevent significant drops in the US Dollar's value.

Investors widely believe that the Fed will maintain relatively high interest rates for a considerable period. This conviction is keeping the yields on US Treasury bonds at elevated levels. Remarkably, the yield on the key 10-year US government bond recently hit a 15-year high.

In the meantime, investors are moving cautiously due to a general feeling of uncertainty. This has led to the US Dollar being seen as a safe-haven currency. Currently, it's staying slightly above an important moving average. This cautious attitude among investors might discourage them from taking overly aggressive actions regarding the EUR/USD pair.

Market Events to Watch and Their Impact on EUR/USD Trading

Investors are cautious ahead of speeches by Fed Chair Jerome Powell and ECB President Christine Lagarde at the Jackson Hole Symposium, along with upcoming preliminary PMI numbers from the Euro Zone and the US, which provide insights into economic performance and potential central bank actions.

Besides this, attention turns to Tuesday's release of Euro Zone Current Account figures and US data on Existing Home Sales and the Richmond Manufacturing Index. These, coupled with US bond yields and overall investor risk sentiment, will influence the short-term trading dynamics of the EUR/USD pair.

EUR/USD - Technical analysis

The EUR/USD currency pair concluded the previous day's trading session above the 1.0880 level, and as the new day commences, it carries forward an additional bullish inclination. This momentum has prompted a test of the EMA50, which forms a minor resistance point at 1.0915. This development indicates a potential for achieving projected gains within the intraday scope, with an initial target set at 1.0955. It's worth noting that surpassing this level could serve as a catalyst for the price to progress toward the next positive station at 1.1030.

Given the current trajectory, a continued bullish bias is anticipated for the present trading session. It is essential to highlight that any breach of the 1.0880 level would potentially curtail the projected upward movement, causing the price to revert to a correctional bearish phase. The projected trading range for the day is expected to fall between the support level at 1.0850 and the resistance level at 1.1000.