The EUR/USD lost the gains it had previously made due to increased strength in US job numbers and positive data in the housing market. The decrease was not significant because of the European Central Bank’s cautious stance. However, with instability in financial markets and the increasing strength of the US dollar supported by data, there was a possibility of the EUR/USD weakening further in the short term. Traders were paying attention to whether the support level at 1.0845/1.0850 would be broken.
Euro to US dollar analysis: Jobless Claims Drop to Lowest Since September 2022
After recently observing a stronger-than-anticipated increase in consumer prices, employment rates, and retail sales, today presented additional indications of the labor market’s resilience.
Last week, there was an unexpected decrease in applications for unemployment benefits in the US, reaching the lowest level in over a year with a total of 187,000 applications. Analysts were surprised by this drop of 16,000, as they had predicted a rise of 3,000 to reach 206,000. Additionally, the number of continuing claims also declined for the third consecutive week, reaching 1.81 million, the lowest since October.
Additionally, we received positive housing market information that exceeded expectations, unless you disregard the changes made to November’s data. The number of new residential construction projects started decreased by 4.3% from the previous month, which was much better than the anticipated 8.7% decrease. However, the initial report of a 14.8% increase in November was revised to a still significant 10.8% increase. On the other hand, the number of permits issued for building construction saw a greater than expected increase of 1.9% from the previous month, surpassing the predicted 0.6% increase. Furthermore, there was a slight upward adjustment to the November figure.
Nevertheless, there was additional decline observed in manufacturing activity, specifically from the Philly Fed index. For the 18th time in the last 20 months, activity in the Philadelphia region has decreased. The index reported a value of -10.6, surpassing the predicted value of -6.5, indicating a worse state of affairs.
US dollar recovers from earlier weakness
At an earlier point in time, the US dollar’s surge had come to a halt due to a favorable indication observed in the stock markets. Investors will be closely observing additional statements from the Federal Reserve, which will include input from the centrist Raphael Bostic on this day.
In the past few days, there has been a growing demand for the dollar due to worries about the Federal Reserve’s decision to keep interest rates high for a longer period. The recent surge in the value of the dollar was sparked by comments from Fed governor Christopher Waller, who advised being careful before making any quick decisions about reducing interest rates in the near future. Waller emphasized the strength of the US economy and played down the likelihood of an immediate decrease in interest rates. It remains to be seen if other Federal Reserve officials will share his perspective.
EUR/USD analysis: Path of least resistance to downside
Despite the stock market becoming more stable, the selling pressure on the EUR/USD pair has started again. The dollar continues to be the strongest currency, as expectations for a cut in interest rates by the Federal Reserve have been delayed. Unless there is a significant change in the overall economic situation, the EUR/USD pair may continue to decline.
The European Central Bank (ECB) has indeed attempted to resist lowering interest rates, however, the Eurozone lacks the positive economic data that has been observed in the United States. Investors are worried that central banks such as the Federal Reserve, ECB, and Bank of England will not decrease interest rates as quickly or to the extent that the markets had anticipated. This is partly due to the relatively stronger economy in the US, while concerns about persistently high inflation and elevated wage pressures in the UK and Eurozone contribute to the hesitancy in those regions.
On Wednesday, we received comments from Christine Lagarde, the president of the ECB, indicating that interest rates may decrease in the summer instead of the spring. Additionally, a number of other ECB officials have voiced worries about wage inflation. It is scheduled for Christine Lagarde to speak once more today at 15:15 GMT.
As the ECB delays anticipated rate cuts, the euro may show stronger performance compared to certain weaker currencies. However, if the US data does not quickly start declining, the euro will likely continue to decline against the dollar.
Also Read: Yen Hits 20-Year Lows as Dollar Soars on Rising Interest Rates
EUR/USD technical analysis
- EUR/USD technical analysis
The EURUSD bulls will be disappointed by the EUR/USD’s inability to maintain its earlier gains,On Wednesday, a small candle in the shape of a hammer formed exactly at the 200-day moving average. The candle also rose above the previously broken support level of 1.0877. At first glance, the price action on Wednesday seems positive and there was some continuation of this trend earlier in the day. However, it is important to note that several bullish patterns have failed to remain intact this year, and it appears that this situation is another example of such breakdowns.
Currently, it appears that the EUR/USD is indicating that the buyers are in a difficult position. This is because it is struggling to stay above the hammer candle and the support level of 1.0877 from Wednesday. Therefore, there is a higher chance that this negative change in direction could lead to a decrease to a value lower than Wednesday’s low of 1.0844, where there are likely some sell orders waiting to be executed.
If we go lower than the lowest point on Wednesday, the next possible target for a decrease could be around 1.0815, which is where the last rally started. The next target for a bearish move is the liquidity that is resting below the lowest point reached in December, at 1.0723.
Looking at the positive aspect, there is a small barrier around the 1.09 mark that is acting as a temporary obstruction. This resistance is formed by the opposite side of the trend line that has been breached.
Despite the current improvement in risk appetite, the EUR/USD needs to reach a higher high in order for the bulls to be certain that a bottom has been reached. Specifically, if the price rises above the level of 1.0950, it would be a positive sign as it would indicate a three-bar reversal formation.
I am expecting a move above the level of 1.0950 in the EUR/USD to indicate a positive shift in strategy, potentially leading to a surge in price towards the stops placed above the high of 1.1000 from last week.
However, unless we witness a significant bullish reversal pattern, the short-term direction will continue to be bearish in spite of the generally positive conditions for the US dollar that we have seen since the beginning of the year.
