Technical Analysis

EUR/USD Price Analysis – May 08, 2024

By LonghornFX Technical Analysis
May 8, 20244 min

Daily Price Outlook

During the European trading session, the EUR/USD currency pair continued its downward trend and stayed bearish around the 1.0742 level, hitting an intraday low of 1.0734. This decline was mainly driven by a stronger US dollar, bolstered by hawkish remarks from Fed official Neel Kashkari, who indicated that rate cuts are unlikely this year due to the strength of the housing market. These comments supported the US dollar and contributed to the decline in the EUR/USD pair.

Additionally, expectations of interest rate cuts by the European Central Board (ECB) and the resulting policy divergence with the Fed likely added to the downward pressure on the EUR/USD pair.

Mixed Signals on Fed Rate Cuts and Weak US Data Strengthen Dollar, Pressuring EUR/USD Pair

On the US front, the dollar strengthened as worries about potential interest rate cuts by the Federal Reserve eased somewhat, following remarks from Fed Chair Jerome Powell indicating a halt in further tightening measures. However, Minneapolis Fed President Neel Kashkari's hawkish stance, highlighting robust housing market conditions, tempered expectations for rate cuts.

Despite this, the likelihood of rate reductions in September increased to 65%, according to the CME FedWatch tool, driven by weaker-than-expected US economic data, including slower job growth, a rise in the unemployment rate to 3.9%, and softening wage growth.

Moreover, the Services PMI fell below the expansion threshold of 50.0, indicating a contraction in the sector. This mixed economic outlook supported the dollar's rebound, as reflected in the US Dollar Index climbing to 105.60. Meanwhile, in Europe, the euro struggled to maintain its recent gains against the dollar amid growing expectations of interest rate cuts by the European Central Bank, creating downward pressure on the EUR/USD currency pair.

Therefore, the EUR/USD pair came under pressure due to a stronger US dollar, driven by the Fed's mixed signals on rate cuts and weaker US economic data, while the euro faced expectations of ECB rate cuts.

ECB's Anticipated Rate Cuts Expected to Weaken Euro, Pressuring EUR/USD Pair

On the other side, the European Central Bank (ECB) is expected to begin cutting interest rates starting from its June meeting. This comes as price pressures in the Eurozone are anticipated to move toward the 2% target, while service inflation, which had remained at 4.0% for five consecutive months, is now showing signs of softening.

Many ECB policymakers are comfortable with this move, provided there are no unforeseen developments. Furthermore, it is projected that the ECB will implement three rate cuts this year, potentially surpassing the Federal Reserve's expected rate adjustments, which could widen the policy gap between the two central banks.

Therefore, the anticipated interest rate cuts by the European Central Bank are likely to weaken the euro, contributing to additional downward pressure on the EUR/USD pair, especially as the Federal Reserve's rate outlook remains relatively stable.

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

EUR/USD - Technical Analysis

Today's technical analysis for EUR/USD reflects a minor downtrend with the currency pair down by 0.07%, trading at $1.07458. This subtle movement comes amidst fluctuating market sentiments and is framed by critical technical levels that might serve as catalysts for future price actions.

The EUR/USD is currently operating below its pivot point set at $1.0800, indicating a bearish sentiment in the near term. Key resistance levels for the day are marked at $1.0808, $1.0839, and $1.0883. These thresholds could restrict upward price movements unless a significant market driver shifts the trading sentiment.

Conversely, the currency finds immediate support at $1.0686, with further cushions at $1.0656 and $1.0626, which could be tested if the bearish pressure continues.

Technical indicators show a Relative Strength Index (RSI) of 49, hovering near the midpoint, which suggests a neutral market without clear directional bias. The 50-Day Exponential Moving Average (EMA) at $1.0727 slightly below the current price supports this neutral to slightly bearish stance.

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