Technical Analysis

EUR/USD Price Analysis – Feb 07, 2024

By LonghornFX Technical Analysis
Feb 7, 20243 min

Daily Price Outlook 

Despite the downbeat German Industrial Production and Eurozone Retail Sales, the EUR/USD currency pair maintained its upward stance and gained significant traction around the 1.0771 level. However, its upward trend can be tied to the bearish bias in the US Dollar (USD). In contrast to this, the sharp 1.1% monthly decline in Eurozone Retail Sales in December could potentially weigh on the EUR/USD pair due to concerns about economic weakness in the Eurozone.

Impact of Economic Struggles in Germany and Eurozone Retail Sales on EUR/USD Pair

In December, Germany's factories faced challenges, with industrial output dropping by 1.6%, worse than expected. Economists were predicting only a 0.4% decline. This follows a 0.7% decrease in November. Compared to last year, industrial production in December dropped by 3.0%, showing a slowdown in Germany's manufacturing sector, although it's slightly better than November's 4.8% decrease.

Meanwhile, the retail sales in the Eurozone dropped by 1.1% compared to last month and 0.8% compared to last year. Pablo Hernandez de Cos from the ECB thinks inflation will hit the 2% target and wants to lower interest rates. But Boris Vujcic, another ECB member, wants to wait and see if wage costs drive long-term inflation before cutting rates.

Therefore, this news could potentially weaken the euro against the US dollar, as it suggests economic struggles in Eurozone economy, leading to decreased investor confidence in the euro.

Delayed Fed Rate Cuts Strengthen US Dollar Temporarily

Besides this, Patrick Harker, President of the Federal Reserve Bank of Philadelphia, confirmed that the Fed decided to keep interest rates unchanged last week due to expectations of further decreases in inflation. Meanwhile, Loretta Mester, President of the Federal Reserve Bank of Cleveland, mentioned the possibility of lowering rates later this year if the economy progresses as expected. Fed Chair Jerome Powell supported this idea, suggesting a plan for three rate cuts in 2024, possibly starting in May. The Fed's delay in easing monetary policy could temporarily strengthen the US dollar. Market expectations, as per CME's FedWatch Tool, indicate a 15% chance of rate cuts at the March meeting.

Therefore, the prospect of delayed rate cuts by the Fed may strengthen the US dollar temporarily against the euro, as it signals a more cautious approach to monetary policy easing, influencing the EUR/USD pair.

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

EUR/USD - Technical Analysis

The EUR/USD currency pair is experiencing a slight uptick, appreciating by 0.09% to 1.07636. The current market sentiment hinges on the pivot point at 1.0747, a key indicator for near-term price movements. Immediate resistance is established at 1.0821, with subsequent barriers at 1.0860 and 1.0942 potentially capping upward trends. On the downside, support begins to form at 1.0702, with further layers at 1.0628 and 1.0554 set to absorb any bearish pressure.

The Relative Strength Index (RSI) is resting at 44, pointing to a somewhat subdued bullish momentum. The MACD index, with a current value of 0.0002 slightly above the signal line at -0.0021, is indicating a marginal bullish crossover, albeit within a cautious market context. Furthermore, the 50-day Exponential Moving Average (EMA) at 1.0756 closely trails the pivot point, underscoring the currency pair's ongoing consolidation phase.

From a technical perspective, the EUR/USD pair presents a delicate balance between bulls and bears. A tactical approach would be to set a sell limit order at 1.07693, with a take profit target at 1.07153 and a stop loss at 1.08074. This strategy aligns with the current market structure and offers a prudent risk-reward ratio for traders.

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