Technical Analysis

EUR/USD Price Analysis – May 24, 2024

By LonghornFX Technical Analysis
May 24, 20244 min

Daily Price Outlook

During the early European session on Friday, the EUR/USD pair has been losing traction and hit the intra-day low of 1.0805 level. However, the downward trend was largely driven by a stronger US dollar and weaker sentiment surrounding the Euro (EUR).

Traders are responding to the upbeat US economic data and increasing speculations about potential interest rate cuts by the European Central Bank (ECB). These factors have contributed to the bearish performance of the EUR/USD pair.

Notably, the shared currency (Euro) has been under pressure due to growing expectations that the ECB may cut interest rates in June.

This outlook is based on comments from ECB President Christine Lagarde, who expressed confidence in Eurozone inflation being under control. Apart from this, financial markets have priced in a 25 basis point (bps) rate cut, adding to the Euro’s weakness.

Upbeat US PMI Data and the Fed’s Hawkish Comments Support the US Dollar

On the US front, the broad-based US dollar has been gaining strength, supported by stronger-than-expected US economic data. Moreover, hawkish comments from Atlanta Fed President Raphael Bostic have further strengthened the dollar.

On the data front, the latest S&P Global flash May Composite Purchasing Managers Index (PMI) data showed significant improvement, climbing to 54.4 in May from 51.3 in April. This is the highest level since April 2022.

Similarly, the Manufacturing PMI rose to 50.9 from 50.0, and the Services PMI increased to 54.8 from 51.3, both exceeding market expectations.

Additionally, the weekly Initial Jobless Claims data was better than anticipated, dropping to 215,000 from 223,000, indicating a robust labor market. These positive economic indicators have boosted confidence in the US economy and supported the USD.

Atlanta Fed President Raphael Bostic suggested that the US central bank might delay cutting interest rates due to persistent inflationary pressures. His remarks have reinforced the market’s expectation of prolonged higher interest rates in the US. This put further pressure on EUR/USD pair by underpinning the US dollar.

Traders Bet on ECB Rate Cuts in June, Weighing on the Euro

On the other hand, the increasing speculation about potential rate cuts by the ECB has intensified, putting additional selling pressure on the Euro.

ECB President Christine Lagarde’s recent statements have increased market expectations for a rate cut, with financial markets now pricing in a 25 bps cut in June. This speculation is rooted in the belief that Eurozone inflation is under control, which might allow the ECB to lower rates sooner than previously anticipated.

As a result, the expectation of a rate cut has diminished the Euro's appeal to investors. They are now favoring the US Dollar, which offers higher interest rates and a stronger economic outlook. This change in investor sentiment has led to more selling of the Euro, pushing the EUR/USD pair further down.

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

EUR/USD - Technical Analysis

The EUR/USD pair is currently trading at $1.08102, down 0.07%. The technical outlook suggests a mixed sentiment as the price hovers around the pivot point of $1.0806. Immediate resistance is observed at $1.0828, followed by $1.0853 and $1.0882.

On the downside, immediate support is noted at $1.0784, with further support levels at $1.0767 and $1.0751.

The Relative Strength Index (RSI) is currently at 38, indicating that the pair is approaching oversold conditions. This suggests a potential for a reversal or stabilization in the near term.

The 50-day Exponential Moving Average (EMA) stands at $1.0846, which serves as a significant resistance level that the price needs to break to confirm a bullish trend.

For traders, an entry strategy would be to buy above $1.0806, aiming for a take-profit level of $1.08407 while setting a stop-loss at $1.07857. This approach leverages the potential for an upward movement while managing downside risks.

In summary, the EUR/USD is experiencing a slight decline, with mixed signals from technical indicators. The pivot point at $1.0806 is crucial for determining the next move, with resistance and support levels providing key areas to watch.

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