Technical Analysis

EUR/USD Price Analysis – May 27, 2024

By LonghornFX Technical Analysis
May 27, 20244 min

Daily Price Outlook

Despite the downbeat German IFO survey, the EUR/USD currency pair maintained its upward trend and remained well-bid around the 1.0855 level, hitting an intraday high of 1.0868. However, the reason for its upward trend could be associated with uncertainty over the ECB reducing rates in July too.

However, the major currency pair shows strength as European Central Bank (ECB) policymakers avoid committing to extending the rate-cut cycle beyond the June meeting.

Furthermore, the US dollar has been losing its traction despite strong US economic data and a hawkish Fed stance on interest rates. However, it was being pressured by the risk-on market mood, which tends to undermine safe-haven assets including the US dollar.

Euro Strength Amid ECB Hesitation and Mixed German IFO Data

It's worth noting that the major currency pair is showing strength as European Central Bank (ECB) officials refrain from promising more interest rate cuts beyond the June meeting. They're concerned that aggressive easing might spark inflation.

Traders have adjusted their expectations, now anticipating two rate cuts instead of three for this year. This change is influenced by recent economic data indicating ongoing price pressures, like wage growth and PMI figures.

Therefore, the EUR/USD pair strengthens as the ECB hesitates on further rate cuts to avoid inflation risks. Traders are reducing expected cuts to two amid wage growth and PMI data indicating persistent price pressures.

On the data front, the German IFO Business Climate Index for May slightly dropped to 89.3 from April's 89.4, missing the market's expectation of 90.3. Similarly, the Current Economic Assessment Index decreased to 88.3 from 88.9, below estimates of 89.9.

However, the IFO Expectations Index, which gauges firms' outlook for the next six months, increased to 90.4 compared to April's 89.7 but fell short of the market consensus of 90.5.

Therefore, the slightly disappointing German IFO data for May could exert downward pressure on the EUR/USD pair due to concerns about the Eurozone's economic recovery and potential implications for ECB policy.

Impact on EUR/USD Pair Amid Fed Rate Cut Uncertainty

Despite doubts about the Federal Reserve (Fed) cutting interest rates in September, the US Dollar struggled and remained under pressure in the early European session. Traders now perceive a slightly over 50% chance that the Fed will keep rates steady in September, up from 38% last week, fueled by robust US economic data.

On the data front, US Durable Goods Orders increased by 0.7% in April, surprising experts who had anticipated a decline of 0.8%, following a downward revision in March.

Concurrently, the University of Michigan's Consumer Sentiment Index rose to 69.1 in May from April's 67.4, surpassing the anticipated 67.5. Inflation expectations for the next year edged up slightly to 3.3% from 3.2%, while expectations for the next five years saw a slight dip to 3% from 3.1%.

Hence, the EUR/USD pair experience volatility as uncertainty surrounding Fed rate cuts influences the US Dollar. Traders' shifting expectations toward steady rates and upcoming core PCE inflation data could impact market sentiment, affecting the dynamics of the currency pair.

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

EUR/USD - Technical Analysis

EUR/USD is trading at $1.08496, up 0.02% as the pair shows slight gains amid ongoing market uncertainties. The pivot point at $1.0853 is critical for determining the market’s next move.

Immediate resistance levels are located at $1.0875, $1.0895, and $1.0914, suggesting potential upward targets if bullish momentum persists. On the downside, immediate support is found at $1.0833, followed by $1.0808 and $1.0783, providing key levels to watch if the price faces selling pressure.

The Relative Strength Index (RSI) is currently at 54, indicating a neutral stance with no immediate overbought or oversold conditions. The 50-day Exponential Moving Average (EMA) is at $1.0852, with the price hovering around this level, suggesting a balanced outlook in the near term.

Given the current technical configuration, a prudent strategy would be a buy stop order above $1.08585. This approach targets potential gains up to $1.08930 while setting a stop loss at $1.08408 to manage risk.

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