Technical Analysis

EUR/USD Price Analysis – Dec 04, 2023

By LonghornFX Technical Analysis
Dec 4, 20233 min

Daily Price Outlook

The EUR/USD currency pair succeeded to stop its three-day losing streak and drew some strong bids around above 1.0890 marks. However, the reason for its upward rally could be attributed to the weaker US dollar and lower US Treasury bond yields amid speculation that the Federal Reserve has reached its peak of the rate hike cycle and will ease policy soon.

Conversely, the statement by ECB policymaker Francois Villeroy de Galhau, hinting at a potential rate cut in 2024 due to inflation concerns, could exert downward pressure on the EUR/USD pair.

Market Impact of Powell's Dovish Stance and Weak US Manufacturing Data on the EUR/USD Pair

The broad-based US dollar failed to stop its downward trend and remained pressured amid comments from Fed Chairman Jerome Powell last Friday. Powell's remarks hinted that the Fed might not raise interest rates further and could even consider easing in 2024. He mentioned it's too early to be confident about the Fed's stance or when they might make policy changes.

On another note, the US manufacturing sector experienced a sluggish performance in November. The Institute for Supply Management (ISM) revealed that the US ISM Manufacturing Purchasing Managers' Index (PMI) fell below expectations, registering at 46.7, indicating a modest slowdown. Employment in the manufacturing sector also faced a decline, dropping from 46.8 to 45.8. Therefore, Powell's dovish comments have weakened the US Dollar, potentially benefiting the EUR/USD pair.

ECB's Policy Outlook and Its Potential Impact on EUR/USD Pair

Moreover, ECB policymaker Francois Villeroy de Galhau stated last week that the ECB isn't thinking about cutting borrowing costs right now but might think about it in 2024. However, the slowdown in inflation is making the ECB pay close attention to its 2% inflation goal, which hasn't been so clear since summer 2021. This could suggest a possible change in how the ECB manages its money policies.

Hence, Francois Villaeroy de Galhau's remarks will likely influence the EUR/USD pair, as the ECB's cautious stance on cutting borrowing costs contrasts with potential easing from the Fed.

 EUR/USD Price Chart – Source: Tradingview
 EUR/USD Price Chart – Source: Tradingview

EUR/USD - Technical Analysis

The EUR/USD pair is currently witnessing a minor downtrend, trading at around 1.08, marking a decrease of 0.05%. This slight dip places the pair in a cautious zone as it navigates through key technical levels.

The pivot point for the pair stands at $1.0728, which serves as a critical juncture for determining its short-term direction. Resistance levels are observed at $1.0804, $1.0911, and $1.0991, while the immediate support lies at $1.0613. Further supports are established at $1.0514 and $1.0400, which could play a significant role in the coming sessions.

Technical indicators provide a deeper insight into the pair's current sentiment. The Relative Strength Index (RSI) is at 36, indicating a bearish sentiment as it is below the 50 mark. This suggests that the pair is not yet in oversold territory but is certainly leaning towards a bearish bias.

Additionally, the pair is trading below the 50-day Exponential Moving Average (EMA) of $1.0913, further affirming the short-term bearish trend. This positioning below the 50 EMA is a signal for potential downward movement in the near future.

Chart patterns indicate that the pair is currently operating in a bearish zone, particularly below the $1.08955 level. This pattern suggests a continuation of the bearish trend unless a significant reversal occurs above this threshold.

The overall trend for the EUR/USD pair is bearish, especially below the $1.08955 level. Traders and investors should brace for potential testing of lower support levels, particularly if the pair fails to reclaim higher resistance levels. The market will closely monitor any changes in the fundamental landscape, which could impact this technical outlook.

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