The Euro experienced a significant drop on Wednesday, marking the largest daily loss since April 30th. This decline was primarily driven by fresh risk aversion in the market. However, bears were able to find support around the 1.0790/80 zone, which includes the top of the thick daily cloud, 200DMA, and the Fibo 38.2% of the rally from 1.0601 to 1.0895. As a result, market participants are now looking for new signals to determine the next direction for the currency. The recent price action has been hampered by a bearish candle formation on Wednesday, the creation of a failure swing pattern, and a bearish cross of the 10/20DMA. Despite these short-term challenges, the momentum remains positive on the daily chart, and the larger uptrend from 1.0601 is still intact as long as the price stays above the 200DMA, Fibo support, and daily cloud top.
Market Fundamentals
From a fundamental perspective, the outlook for the Euro remains overshadowed by the strength of the US dollar. The hopes for a Federal Reserve rate cut in the near future are diminishing due to persistent inflationary pressures. Market participants are closely monitoring key economic events such as the release of the US revised Q1 GDP, weekly jobless claims, and the PCE report (Fed’s preferred inflation gauge). These data releases are expected to provide fresh signals regarding the health of the US economy and the potential monetary policy actions by the Fed.
Technical Levels to Watch
In the near term, traders should be on the lookout for a firm break below the 1.0780 support zone, which could signal further bearish momentum in the Euro. On the other hand, a move above the initial resistance at 1.0816 (20DMA) would alleviate some of the immediate downside pressure. A sustained rally that extends beyond the 10DMA at 1.0838 would be a stronger bullish signal for the Euro. Key resistance levels to watch include 1.0816, 1.0825, 1.0838, and 1.0860. On the downside, support levels are seen at 1.0780, 1.0748, 1.0724, and 1.0700.
The Euro is currently in a consolidation phase as market participants assess the impact of risk aversion and the strength of the US dollar. Technical indicators suggest a cautious outlook, while fundamental factors may continue to favor the US dollar in the near term. Traders should pay close attention to key technical levels and upcoming economic data releases for further guidance on the Euro’s future direction.
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