Technical Analysis

EUR/USD Price Analysis – Feb 02, 2024

By LonghornFX Technical Analysis
Feb 2, 20244 min

Daily Price Outlook 

The EUR/USD currency pair managed to stop its losses and gained some positive traction above the 1.0890 level. However, the reason for its upward trend can be attributed to the bearish US dollar. The broad-based US dollar is going to end this week on the bearish track ahead of key U.S. nonfarm payrolls data. The US Federal Reserve (Fed) decided to hold rates unchanged and shrugged off market bets to cut rates in March. This stance drove investors into risk-driven assets despite the prospect of higher-for-longer interest rates. In contrast to this, the high rate cut expectations for the ECB in April and fully priced-in cuts for June may lead to a weakened Euro (EUR) against the US Dollar (USD), impacting the EUR/USD pair with potential downward pressure.

Federal Reserve's Stance and US Economic Data Impact on EUR/USD Pair

It's important to note that Federal Reserve Chair Jerome Powell, speaking after the recent FOMC decision, highlighted that it's too early to claim victory over inflation. Despite acknowledging a downward trend in prices, he ruled out a rate cut in March. Despite this, S&P Global reported a boost in US business activity, with the Manufacturing PMI climbing from 47.9 to 50.7 in January.

Although the ISM Manufacturing PMI for January was at 49.1, indicating a recessionary territory, it was an improvement from December and surpassed expectations of 47. This data follows the Federal Reserve's decision to keep interest rates steady, and despite ruling out a March rate cut, Powell expressed cautious optimism about the US economy.

Therefore, this news will likely pressure the EUR/USD pair downward as the Federal Reserve's cautious optimism and the absence of a March rate cut strengthen the US dollar. However, concerns about inflation and recessionary signs could create some volatility favoring the EUR.

Eurozone Inflation Data and Anticipated ECB Rate Cuts Impact EUR/USD Pair

At home, Eurozone inflation, measured by the Harmonized Index of Consumer Prices (HICP), inched down to 2.8% YoY in January from 2.9%. The Core HICP dropped from 3.4% to 3.3%, missing the expected 3.2%. Looking ahead, there's an 89% expectation for an ECB rate cut in April, fully priced in for June. The Eurozone's lower inflation and anticipated ECB rate cuts may weaken the Euro against the US Dollar, influencing the EUR/USD pair downward.

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

EUR/USD - Technical Analysis

The EUR/USD pair sees a modest uptick in today's trading, marking a 0.04% increase to 1.08760. This minor change occurs within the context of a 4-hour chart that reveals the currency pair is hovering just below a critical pivot point of 1.08784. The immediate resistance levels are set at 1.09014, 1.09273, and 1.09513, suggesting potential upper boundaries for the pair's short-term movements. Conversely, support levels are established at 1.08512, 1.08250, and 1.07906, offering a buffer against downward price action.

The Relative Strength Index (RSI) stands at 60, indicating a balanced yet slightly bullish momentum. The 50-day Exponential Moving Average (EMA) closely tracks the current price at 1.08519, reinforcing the significance of the pivot point as a determinant of directional bias.

A notable chart pattern is the EUR/USD's struggle to breach the 1.08784 level, marked by a descending trendline. A successful breakout above this level could signal a shift towards bullish territory and dictate the pair's near-term price trajectory.

The EUR/USD's technical perspective is cautiously optimistic, with a proposed buying strategy initiating at a stop of 1.08812. Targeted profits are advised at 1.09074, with a stop loss placed at 1.08609 to manage risk. This setup suggests a tactical approach, banking on a potential breakout for gains while remaining mindful of underlying support and resistance dynamics.

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