Today we shall take a look at the EUR/USD currency pair. This pair suffered a sharp downward drop last week with the announcement of the Federal Reserve that it may tighten its monetary policy much sooner than previously planned. Today the pair is trading around 1.1895, which is its lowest level since April.
It is true that not much has changed for the euro. In terms of domestic factors, economic indicators are doing well, occasionally overshooting the target levels, which shows that the region is indeed recovering from the coronavirus pandemic and the lockdowns it caused. Indeed, most EU states have cancelled almost all Covid-19 restrictions and are pushing ahead with vaccinations at full speed. However, due to the nature of the European economy, i.e. it being less flexible than the economy of the United States, for instance, the overall recovery process is expected to take longer, and the European Central Bank will have to keep its monetary policy loose for a longer period of time compared to the US. Thus, right now the euro remains strong overall, but the dollar is simply much stronger.
As mentioned above, the Federal Reserve last week announced that it will likely tighten its policy sooner than planned. In particular, two interest rate hikes are now tentatively scheduled for 2023, instead of 2024, which was the original plan of the Fed. Though there is at least a year and a half until the first hike, investors were encouraged that the Federal Reserve is taking note of the improvements in the economy and is open to revisions of its plans in order to prevent the overheating of the economy from too much stimulus. This has propelled the US dollar to a three-month maximum and in the absence of other major economic reports in the next week or so, we expect this sentiment to be the dominant market trend in the near future.
In terms of the daily chart, today we have a pivot point for the pair located at 1.1867, with the price currently trading above it. The daily support levels lie at 1.1858 and 1.1844. The daily resistances are located at 1.1881 and 1.1890 (both overcome). The indicators of technical analysis strongly agree in recommending a sell position today.
