Technical Analysis

EUR/USD Price Analysis – May 29, 2024

By LonghornFX Technical Analysis
May 29, 20244 min

Daily Price Outlook

During the European trading session, the EUR/USD pair continued its downward trend, remaining firmly offered around the 1.0845 level. However, the reason for this decline can be attributed to cautious market sentiment ahead of key economic data releases.

Investors are exercising caution as they await the Eurozone's preliminary Consumer Price Index (CPI) data for May and the US core Personal Consumption Expenditure Price Index (PCE) data for April.

These figures are eagerly anticipated and will impact market speculation regarding interest rate adjustments by the European Central Bank (ECB) and the US Federal Reserve (Fed).

ECB’s Gradual Rate-Cut Approach and Its Impact on EUR/USD

On the EUR front, the decline in the EUR/USD pair has also been influenced by recent comments from ECB officials regarding the approach to future interest rate cuts. ECB governing council member and Dutch central bank chief Klaas Knot suggested a cautious approach to future interest rate cuts, considering factors like inflation, demand, and wage growth.

He noted that earlier projections of multiple rate cuts based on March data might need revision due to improving economic indicators like rising wage growth and a better Manufacturing Purchasing Managers' Index (PMI).

However, the ECB's cautious stance, as highlighted by Knot and fellow policymaker François Villeroy de Galhau, has created uncertainty among investors.

They are unsure about the ECB's specific plan for rate cuts, leading to speculation about the timing and extent of future monetary easing measures. Therefore, this uncertainty has contributed to the weakening of the euro against the US dollar.

US Dollar Bounces Back Amid Fed Rate Cut Expectations

In contrast, the broad-based US dollar has shown a strong recovery on the day. However, the dollar's strength is attributed to positive economic indicators from the United States and a stance from the Federal Reserve (Fed) that suggests a reluctance to cut interest rates soon.

Traders have adjusted their expectations accordingly, reducing the probability of a rate cut by the Fed in September.

Besides this, the anticipation surrounding the upcoming US core Personal Consumption Expenditure (PCE) data, which is expected to show steady growth, is further supporting the US Dollar's position and contributing to the downward trend in the EUR/USD pair.

Hence, the EUR/USD pair is experiencing a downward trend due to the US Dollar's strength driven by positive economic indicators, Fed's reluctance to cut interest rates, and anticipation of steady growth in US core PCE data.

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

EUR/USD - Technical Analysis

The EUR/USD pair is trading at $1.08460, reflecting a decline of 0.11% in the latest session. The pivot point, marked at $1.0857, serves as a critical level for determining market direction.

Immediate resistance levels are identified at $1.0877, $1.0895, and $1.0914. On the downside, immediate support is found at $1.0833, followed by $1.0808 and $1.0783.

The Relative Strength Index (RSI) is at 46, indicating a slightly bearish sentiment as it hovers below the neutral 50 mark.

The 50-day Exponential Moving Average (EMA) is positioned at $1.0851, suggesting that the current price is below this short-term average, reinforcing the bearish outlook.

The recent decline in the EUR/USD pair can be attributed to stronger US economic data and hawkish comments from Federal Reserve officials, which have dampened expectations for an imminent rate cut.

This has provided support for the US Dollar, exerting downward pressure on the Euro. Additionally, market participants are awaiting key economic data releases from both the Eurozone and the United States, which could further influence the pair's direction.

From a technical perspective, a sustained move below the pivot point of $1.0857 could lead to further declines towards the immediate support levels at $1.0833 and $1.0808.

Conversely, if the EUR/USD pair manages to break above the immediate resistance level of $1.0877, it could target higher resistance levels at $1.0895 and $1.0914.

In conclusion, the outlook for EUR/USD remains bearish below the pivot point of $1.0857. The recommended entry price for a potential sell position is $1.08572, with a take profit target set at $1.08328 and a stop loss at $1.08764.

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