EURUSD has been trading lower since the beginning of February. The main currency pair pulled back almost 4% off the daily high reached on February 2, 2023. Outperformance of USD over EUR can be reasoned with monetary policy. Both ECB and Fed are committed to continuing tightening their policies. However, while it is widely believed that the ECB will continue to tighten, it was not so sure for the Fed. The Fed has slowed the pace of rate hikes to 25 basis points at the latest meeting. However, the message sent by Powell during the press conference was hawkish and a streak of better-than-expected US data since the latest FOMC meeting has further boosted expectations that Fed is not done yet. Moreover, FOMC minutes released yesterday showed that a number of Fed members saw a need for another 50 bp rate hike. Having said that, the outlook for ECB policy has not changed while the outlook for Fed policy got more hawkish and this is driving declines in EURUSD.
Taking a look at EURUSD chart at D1 interval, we can see that the main currency pair broke below the lower limit of the Overbalance structure at 1.0660 earlier this week. In theory, this mean that EURUSD trend has reversed bearish. Should we see declines deepen, the nearest support level to watch on the pair are 1.0575 (100-day EMA) and 1.0470 (38.2% retracement of the upward move launched in September 2022. On the other hand, should we see buyers regain control, it would be prudent for traders to wait to see whether EURUSD breaks back above the 1.0660-1.0702 zone before taking action.
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Source: xStation5
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