The EUR/USD pair attracts heavy selling for the second day in a row and falls to its lowest level in almost four weeks, around the 1.1670 region, during the Asian session on Monday. Bearish traders now await a sustained break below the 100-day simple moving average (SMA) before taking positions to extend the recent pullback from the three-month high, or levels just above the 1.1800 mark touched on December 24.
Rising geopolitical tensions are helping the safe-haven US Dollar (USD) capitalize on its recent rebound from its lowest level since early October, which in turn is putting pressure on the EUR/USD pair. However, the US Federal Reserve’s dovish outlook may limit the US dollar’s gains. Furthermore, growing acceptance that the European Central Bank is done cutting interest rates could support the common currency and currency pair.
On the daily chart, the moving average convergence-divergence (MACD) line is sliding below the signal line and is below the zero mark. The negative chart is expanding, indicating downward momentum building. The Relative Strength Index (RSI) is registering 44, below the center line of 50, indicating fading upward momentum. Initial support lies at the 100-day simple moving average at 1.1666; Holding above it will help contain downward pressures for EUR/USD.
Meanwhile, the bullish 100-day SMA continues to support the broader bias, although a daily close below it would tilt the tone back in favor of sellers. Until that gives way, declines could remain above average. Placing the MACD indicator below zero and below the signal line enhances the corrective phase. Holding above the 100-day SMA could stabilize EUR/USD, although an RSI recovery above 50 is necessary to reconfirm bullish momentum.
(Technical analysis of this story was written with the help of an artificial intelligence tool)
Daily chart of EUR/USD
Frequently asked questions about the euro
The euro is the official currency of the twenty European Union countries that belong to the eurozone. It is the second most traded currency in the world after the US dollar. In 2022, it accounted for 31% of all foreign exchange transactions, with an average daily trading volume of more than $2.2 trillion per day. The EUR/USD is the most widely traded currency pair in the world, accounting for a 30% discount on all transactions, followed by EUR/JPY (4%), EUR/GBP (3%), and EUR/AUD (2%).
The European Central Bank (ECB) in Frankfurt, Germany, is the reserve bank for the euro area. The European Central Bank sets interest rates and manages monetary policy. The ECB’s primary mandate is to maintain price stability, which means either controlling inflation or stimulating growth. Its primary tool is to raise or lower interest rates. Relatively high interest rates – or the expectation of higher interest rates – usually benefit the euro and vice versa. The ECB’s Governing Council makes monetary policy decisions at meetings held eight times a year. Decisions are made by the heads of the eurozone’s national banks and the six permanent members, including the President of the European Central Bank, Christine Lagarde.
Eurozone inflation data, measured by the Harmonized Index of Consumer Prices (HICP), is one of the important economic indicators for the euro. If inflation rises beyond expected, especially if it is above the ECB’s 2% target, this forces the ECB to raise interest rates to bring it back under control. Relatively high interest rates compared to their counterparts usually benefit the euro, because they make the region more attractive as a place for global investors to park their money.
Data releases measure the health of the economy and can affect the euro. Indicators such as GDP, manufacturing and services PMIs, employment, and consumer confidence surveys can all influence the direction of the single currency. A strong economy is good for the euro. Not only does it attract more foreign investment, it may encourage the European Central Bank to raise interest rates, which will directly strengthen the euro. Otherwise, if economic data is weak, the euro will likely fall. Economic data for the four largest Eurozone economies (Germany, France, Italy and Spain) are of particular interest, as they represent 75% of the Eurozone economy.
Another important data for the Euro is the trade balance. This indicator measures the difference between what a country earns from its exports and what it spends on imports during a certain period. If a country produces highly desirable exports, its currency will gain value from the additional demand generated by foreign buyers seeking to purchase these goods. Therefore, a positive net trade balance strengthens the currency and vice versa for a negative balance.
