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EUR/USD has been in a more or less continuous decline since mid-July. This downward trend is primarily driven by the contrasting economic conditions in the United States and the euro area and the disparity in the monetary policies pursued by their respective central banks, which have recently caused yields on U.S. Treasury bonds to It has risen to the highest level in several years. day to day.
Currently, the Fed’s benchmark interest rate is at an impressive 5.25% to 5.50%, well above the European Central Bank’s deposit facility rate of 4.0%. This difference is due to the fact that US borrowing costs could rise by another 25 basis points in 2023 as the ECB signals an end to its tightening campaign, while borrowing costs across the Atlantic may remain unchanged. It is likely to expand further in the coming months.
Investors remain skeptical that the Fed will raise interest rates again this year, but market perceptions could change if U.S. macro data continues to be strong. Therefore, traders will need to keep a close eye on August US consumer spending data, which will be released next week. Signs that US consumers continue to spend strongly and price pressures remain severe should be bullish for the US dollar.
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How to trade EUR/USD
Important economic data for next week
sauce: DailyFX Economic Calendar
From a technical analysis perspective, EUR/USD has settled in the support area surrounding the key Fibonacci level at 1.0610 after the recent retracement. While this zone could provide strong protection against further losses, a breakout of it could release significant downward pressure and pave the way for a move down towards 1.0570 and then 1.0500.
Conversely, if buyers unexpectedly reassert market dominance and cause a bullish turn, we would see initial resistance in the 1.0760/1.0785 range, as shown in the attached chart below. Clearing this wall to the upside could increase upward momentum and set the stage for a rally towards the 200-day SMA of 1.0830. If it is even stronger, the focus will shift to 1.1025.
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EUR/USD technical chart
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As shown in the daily chart below, EUR/GBP has been on an uptrend since early September, but over a longer period of time, the pair lacks strong directional conviction and remains mostly sideways. traded and confined within a perfect lateral channel. land, so to speak) – a sign of indecision, given the weak fundamentals of both currencies.
Range markets can be predictable and easy to trade, but the whole premise is to establish a short position in the underlying asset when the price moves towards resistance in anticipation of a pullback, or to trade against a potential pullback. The first step is to establish a long position with technical support.
Looking at EUR/GBP, the price is currently approaching the upper bound of the horizontal corridor at 0.8700, which also coincides with trendline resistance and the 200-day SMA. A pullback is likely on a retest as a significant number of sellers may be concentrated in this area, but a breakout would result in 38.2% of the September 2022/August 2023 recession. This could open the door for a move towards the Fib retracement at 0.8792.
In case of bearish rejection, it could fall towards 0.8610. Further declines will shift focus to 0.8520, an area close to the 2023 low.