The EUR/USD gained 0.31% on Tuesday, reversing a 0.06% loss from the previous day. This article will analyze the potential impact of European Central Bank (ECB) commentary and the US economic calendar on the EUR/USD exchange rate.
Investors must closely monitor ECB commentary throughout the session. Despite recent warnings of a higher-for-longer ECB rate path to tame inflation, investors have largely disregarded these warnings. However, sentiment could change if ECB Executive Board members continue to send cautionary messages. The contrast between ECB messages and positive US economic indicators, which support bets on a March Federal Reserve (Fed) rate cut, adds to the uncertainty.
The lack of economic indicators from the euro area gives more weight to the US economic calendar. On Wednesday, investors will be particularly interested in the Richmond Fed Manufacturing and Services data, as well as the Dallas Fed Services data. Better-than-expected numbers from these indicators could raise bets on a soft landing for the US economy. Although recent US economic indicators reflect a robust economy, concerns regarding softer inflation have led to bets on a March Fed rate cut. Any hints of a pickup in demand-driven inflation could impact sentiment towards the Fed rate path.
In addition to the economic numbers, investors must also closely follow Fed commentary. Reacting to recent inflation figures and the Fed’s forward guidance on interest rates is crucial. These factors will heavily influence market sentiment and play a significant role in determining the near-term trend for the EUR/USD.
Euro area inflation and ECB commentary will likely be the primary drivers of the EUR/USD in the near term. Hotter-than-expected inflation figures would align with recent ECB warnings and support a move towards $1.11. From a technical perspective, the EUR/USD currently sits above the 50-day and 200-day Exponential Moving Averages (EMAs), sending bullish price signals. Breaking above the $1.10500 handle would give the bulls an opportunity to challenge the $1.10720 resistance level.
Conversely, a drop below the $1.10 handle would support a decline towards the $1.09294 support level. The 14-period Daily Relative Strength Index (RSI) currently stands at 63.11, suggesting that the EUR/USD may break above the $1.10720 resistance level before entering overbought territory.
On the 4-hour chart, the 14-period RSI is even higher at 64.76, indicating a potential breakout above the $1.10720 resistance level. However, investors should exercise caution, as entering overbought territory might lead to a reversal in the near future.
ECB commentary and the US economic calendar play significant roles in determining the direction of the EUR/USD exchange rate. While investors have largely ignored ECB warnings regarding a higher-for-longer rate path, continued cautionary messages from ECB Executive Board members could change market sentiment. Positive US economic indicators, combined with the possibility of a March Fed rate cut, add to the uncertainty surrounding the exchange rate. Thus, investors must closely monitor ECB commentary, US economic indicators, and Fed commentary to make well-informed trading decisions.
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