Technical Analysis

EUR/USD Price Analysis – May 06, 2024

By LonghornFX Technical Analysis
May 6, 20244 min

Daily Price Outlook

Despite the dovish stance of the European Central Bank (ECB), the EUR/USD currency pair maintained its upward rally and remained bullish around the 1.0772 level, reaching an intraday high of 1.0776.

The upward trend could be attributed to growing expectations of interest rate cuts by the Federal Reserve and the release of disappointing job data, which weakened the US currency and contributed to gains in the EUR/USD pair.

However, the possibility of interest rate cuts by ECB policymakers, particularly in response to economic concerns, could undermine the EUR currency and limit the upside momentum for the EUR/USD currency pair.

ECB Policy Normalization and Rate Cut Disagreements Could Influence EUR/USD Trends

On the EUR front, the European Central Bank (ECB) is likely to begin normalizing its policies at the June meeting. The ECB's decision on interest rates for the latter part of the year will impact the Euro's value.

There's disagreement among ECB policymakers about extending rate cuts beyond June. Some believe that more cuts from July could help boost inflation.

Yannis Stournaras, the Bank of Greece Governor, anticipates three rate cuts this year, possibly one in July. He cites the Eurozone's stronger-than-expected economic growth in the first quarter, expanding by 0.3%, as a reason for his forecast.

If the ECB starts normalizing its policies in June, it could strengthen the Euro, driving the EUR/USD pair higher. However, continued disagreement among ECB policymakers about further interest rate cuts might limit the pair's gains. A more dovish outlook from the ECB could weaken the Euro, potentially leading to a drop in the EUR/USD rate.

US Dollar Weakness Propels EUR/USD Pair Higher Amid Expectations of Fed Rate Cuts

On the US front, the US dollar weakened due to expectations that the Federal Reserve will cut interest rates in 2024, driven by disappointing job data. The US economy added 175,000 jobs in April, well below the anticipated 243,000, indicating a slowdown in job growth.

Furthermore, wage growth was slightly lower than expected, with average hourly earnings rising by 3.9% year-over-year instead of the expected 4.0%. These factors increase the likelihood of a Fed rate cut, with nearly a 49% chance of a 25-basis-point cut in September.

Therefore, the weaker US dollar, driven by potential Fed rate cuts and disappointing job data, supported the EUR/USD pair, leading to an increase in its value.

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

EUR/USD - Technical Analysis

On May 6, the EUR/USD pair is subtly appreciating, marked at $1.07644, up 0.02%. It stands just above the pivotal level of $1.07535, which is instrumental in guiding today’s trading sentiment. The proximity to this pivot underscores a restrained but positive momentum as the market seeks direction.

Looking upwards, the immediate resistance at $1.08080 represents the first significant barrier to further gains. Successive resistance levels at $1.08385 and $1.08834 further map the landscape for potential bullish moves, defining clear targets for traders eyeing an extension of the upward trajectory.

Conversely, the immediate support at $1.07200 serves as the first defensive line against any downward corrections. Additional support levels are found at $1.06731 and $1.06382, providing safety nets should bearish pressures intensify.

The technical indicators add depth to this outlook, with the Relative Strength Index (RSI) currently at 61, signaling slight upward momentum but cautioning against potential overextension. The 50-day Exponential Moving Average (EMA), resting at $1.07122, lies below the current price and pivot point, reinforcing the mild bullish sentiment.

Given the current setup, where EUR/USD hovers around and slightly above its pivot point and 50 EMA, traders might consider a cautiously optimistic approach.

The recommended entry price for a bullish scenario is set at $1.07528, with a target for taking profits at $1.08082. The stop loss is advised at $1.07080 to protect against unexpected downturns.

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