Technical Analysis

EUR/USD Price Analysis – May 16, 2023

By LonghornFX Technical Analysis
May 16, 20234 min

Daily Price Outlook

The EUR/USD currency pair has continued its bullish rally and gained further momentum above the 1.0880 level. The main reason behind this winning streak is the weakness of the US Dollar, which has been undermined by cautious sentiment surrounding the upcoming debt ceiling talks and disappointing US economic data.

As a result, investors have been favoring the Euro over the US Dollar, leading to upward pressure on the EUR/USD pair. Additionally, the positive economic analysis from the European Commission has provided additional support to the pair.

Currently, the EUR/USD currency pair is trading at 1.0875 and is consolidating within a range of 1.0863 to 1.0885.

Upwardly Revised Eurozone Projections and ECB Bulletin Influence EUR/USD Currency Pair

The European Commission has recently revised its quarterly projections for economic growth and inflation in the Eurozone for 2023. The revised figures indicate a growth rate of 1.1% and an inflation rate of 5.8%, surpassing the previously expected figures announced in February.

In addition, the European Central Bank (ECB) has released its monthly Economic Bulletin, which provides insights on economic, financial, and monetary developments in the Euro area. The report highlights that the majority of the impact on inflation is expected to occur from 2023 onwards. Furthermore, the ECB Bulletin emphasizes the quick transmission effect of rate hikes on economic activity.

These positive projections and insights from the European Commission and ECB are likely to strengthen the Euro against the US Dollar. The revised growth and inflation figures for the Eurozone indicate a more optimistic economic outlook, which could attract investors and increase demand for the Euro.

Germany's Economic Weakness and Eurozone Industrial Production Decline Affect EUR/USD Pair

Germany's Economy Ministry, in its monthly report, has highlighted a noticeable weakening of the underlying economic momentum. Adding to this, Eurozone Industrial Production figures for March revealed a significant decline of 4.1%, falling short of expectations of -2.5% and the previous reading of +1.5%.

The year-on-year figures were particularly disappointing, showing a decrease of -1.4% compared to a prior growth of 2.0%, and an expected increase of 0.9%.

These indicators of a weakening German economy and the decline in Eurozone industrial production could impact the EUR/USD currency pair. Concerns about the overall economic health of the Eurozone may arise as a result.

Consequently, this could lead to decreased demand for the Euro and a subsequent weakening of the currency against the US Dollar.

Federal Reserve Signals and US Debt Ceiling Concerns Impact EUR/USD Pair

The broad-based US dollar is expected to maintain its strength as the central bank is likely to continue its policy of raising interest rates. Comments from Atlanta Fed President Raphael Bostic expressing concerns about inflation and the possibility of increasing interest rates have contributed to this sentiment. This could potentially limit further gains for the EUR/USD pair.

As a result, the potential for higher interest rates may constrain any additional upward movement in the EUR/USD pair.

However, conflicting statements from Federal Reserve officials and uncertainties surrounding the extension of the US debt ceiling have made investors hesitant to take significant positions, creating a cautious atmosphere in the market.

Consequently, investors may lean towards the stability of the US dollar, which could restrict the upside potential for the EUR/USD pair.

 EUR/USD Price Chart - Source: Tradingview

EUR/USD – Technical Outlook

Today, the EUR/USD currency pair is trading at the 1.0880 level. Recent strength in the US dollar exerted downward pressure on the euro, causing it to decline from the 1.100 level to the 1.0842 level.

However, the EUR/USD pair found support around the 1.0840 level, forming a double bottom pattern. The significance of this level is highlighted by the closing of candles, which has the potential to trigger a bullish move.

Analyzing the Relative Strength Index (RSI) and Moving Average Convergence Divergence (MACD) indicators, we observe that the MACD is emerging from the overbought zone and is currently approaching the zero level, suggesting a dominant bullish sentiment.

Similarly, the RSI is also recovering from the oversold zone and is now holding around the 40 levels after crossing above the 20 oversold levels. These indicators collectively indicate the likelihood of an upcoming corrective move.

On the upside, the EUR/USD pair will likely encounter resistance around the 1.0920 level. Further beyond this, a breakout above the 1.0920 level could potentially lead to an upward move toward the 1.0944 or 1.10068 levels.

Conversely, if the EUR/USD pair breaks below the 1.0840 level, it may target the next support level at 1.00787.


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