Technical Analysis

EUR/USD Price Analysis – March 18, 2024

By LonghornFX Technical Analysis
Mar 18, 20244 min

Daily Price Outlook

Despite the renewed strength of the US dollar, the EUR/USD currency pair managed to halt its downward trend and turned bullish around the 1.0895 level. The upward trend can be attributed to positive incoming data, such as strong economic indicators from the Eurozone. Additionally, the indication of a potential rate cut by the ECB due to concerns over inflation could exert downward pressure on the EUR currency as investors anticipate looser monetary policy, potentially leading to decreased demand for the euro.

Impact of ECB Policy and Economic Indicators on EUR/USD Pair

On the EUR front, the European Central Bank (ECB) maintained its record-high borrowing costs in March. However, policymakers hinted at a potential rate cut in the future. ECB policymaker Pablo Hernandez de Cos mentioned that the bank has made progress in reducing inflation and is starting to discuss monetary easing. He suggested that interest rate cuts could begin in June following a decline in Eurozone inflation. This indicates that the ECB is closely monitoring economic conditions and is prepared to take action to support the economy if needed.

Therefore, the ECB's indication of potential rate cuts and monetary easing could exert downward pressure on the EUR currency as lower interest rates typically make a currency less attractive to investors, leading to a potential decrease in its value. This sentiment suggests a possible negative impact on the EUR currency in the near future.

Moving ahead, the upcoming release of Eurozone economic indicators and the ZEW Survey from Germany and the Eurozone, followed by the FOMC interest rate decision, could create volatility in the EUR/USD pair. Positive data may support the EUR, but the FOMC decision could also impact market sentiment, leading to potential trading opportunities.

Impact of FOMC Interest Rate Decision on EUR/USD Pair

On the US front, investors are eagerly awaiting the Federal Open Market Committee's (FOMC) decision on interest rates this Wednesday. It's widely anticipated that the FOMC will maintain the current rate, which is already at a 22-year high. This decision reflects the Fed's cautious approach, as they want to ensure inflation settles around the 2% target before considering any rate cuts. This steady stance might strengthen the US Dollar and create challenges for the EUR/USD pair, potentially impacting currency markets.

On the US data front, the University of Michigan's Consumer Sentiment Index dropped to 76.5 in March, slightly lower than expected. This indicates that consumers are feeling less optimistic about the economy. However, their expectations for inflation over the next year and five years remained unchanged. On a positive note, US Industrial Production rebounded in February, increasing by 0.1% compared to a decline in January. This suggests that manufacturing and other industrial activities are starting to recover.

Therefore, the cautious approach of the Federal Reserve and the mixed US economic data could lead to a stronger US Dollar, putting downward pressure on the EUR/USD pair.

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

EUR/USD - Technical Analysis

On March 18, the EUR/USD pair remained stable with a negligible decline, marking its position at 1.08879. This stability comes amidst a trading environment that meticulously watches for shifts in global economic indicators and central bank policies, potentially influencing the currency pair's trajectory.

The technical setup for EUR/USD indicates a closely contested battle between bulls and bears around the pivot point of 1.0898. Resistance levels are established at 1.0917, 1.0945, and 1.0964, delineating the hurdles that the euro needs to overcome to sustain an upward momentum against the dollar. Support levels, meanwhile, are situated at 1.0875, with further cushions at 1.0843 and 1.0820, acting as safety nets against a potential downturn.

The technical indicators provide a more nuanced view of the pair's future direction. The Relative Strength Index (RSI) at 39 suggests that the pair is nearing the oversold territory, possibly indicating an upcoming shift in momentum. The 50-Day Exponential Moving Average (EMA) at 1.0916 closely aligns with the first resistance level, underscoring a critical threshold for the currency pair. A notable breakout at the 1.08970 level, as indicated by the upward trendline, points towards the initiation of a selling trend.

In summary, the EUR/USD's current stance is delicately poised at a crucial juncture. While the pair shows potential for a selling trend following the breakout, traders should consider a strategic approach: selling below 1.08971, targeting a take profit at 1.08544, and setting a stop loss at 1.09177. This setup reflects a cautious optimism, tempered with the recognition of underlying volatility and the need for precise, risk-managed entries and exits.

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