EUR/USD Price Analysis – May 20, 2024
Daily Price Outlook
During the European trading session, the EUR/USD pair has witnessed a bearish performance in recent trading sessions, with the currency pair hovering near the 1.0900 level.
This downward trend can be attributed to several factors including cautious investor sentiment, ECB's anticipated interest rate reductions, and the Federal Reserve's commitment to higher interest rates.
Impact of ECB's Anticipated Interest Rate Reductions on EUR/USD Pair
On the EUR front, the European Central Bank (ECB) is widely expected to start a policy shift by reducing interest rates starting from the June meeting. This anticipation has added to the downward pressure on the EUR/USD pair.
The prospect of lower interest rates in the Eurozone compared to the United States makes the euro less attractive to investors, leading to a depreciation of the currency against the US dollar.
The ECB's decision to embark on a rate-cutting cycle reflects concerns about economic growth and inflation dynamics in the Eurozone, further weighing on the euro's value relative to the dollar.
Fed Policymakers Emphasize Higher Interest Rates for Longer: Impact on EUR/USD Pair
On the other hand, Federal Reserve policymakers have adopted a more hawkish stance, emphasizing the need to maintain higher interest rates for an extended period. This divergence in monetary policy between the ECB and the Federal Reserve has exerted additional downward pressure on the EUR/USD pair.
The Federal Reserve's commitment to a restrictive policy stance aims to address inflationary pressures and ensure sustainable economic growth in the United States.
As a result, the expectation of a prolonged period of higher interest rates in the US relative to the Eurozone strengthens the US dollar against the euro, leading to a bearish outlook for the EUR/USD pair.
EUR/USD - Technical Analysis
EUR/USD is currently trading at $1.08814, up 0.10% for the day. The 4-hour chart highlights the pivot point at $1.0905, a crucial level for determining near-term price action. Immediate resistance is observed at $1.0895, followed by $1.0913 and $1.0932.
On the downside, immediate support lies at $1.0854, with further support at $1.0836 and $1.0816.
The Relative Strength Index (RSI) is at 60, suggesting that the pair is in a neutral zone with a slight bullish bias. The 50-day Exponential Moving Average (EMA) is positioned at $1.0852, which supports the bullish outlook.
This level acts as a dynamic support, indicating that the current upward momentum may continue as long as the price remains above it.
Traders should watch the pivot point at $1.0905 closely. A break above this level could propel the EUR/USD towards the immediate resistance at $1.0895 and potentially higher towards $1.0913 and $1.0932.
Conversely, if the pair fails to sustain above the pivot point, it may retrace towards the immediate support at $1.0854, and further down to $1.0836 and $1.0816.
The market sentiment appears to be cautiously optimistic with a tendency towards further appreciation of the euro. The RSI value of 60 indicates that there is still room for upward movement before entering overbought territory.
Meanwhile, the 50 EMA at $1.0852 serves as a robust support level that traders can rely on to gauge the strength of the current trend.
In this scenario, the recommended strategy is to buy above $1.08730, with a take profit level at $1.09051 and a stop loss at $1.08554. In conclusion, EUR/USD remains bullish as long as it stays above the $1.0905 pivot point.
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