EUR/USD price setup: a bit more downside within a broader consolidation?
A minor double top pattern points to some more downside in EUR/USD; however, it is too soon to conclude that EUR/USD’s multi-week uptrend has reversed and what is the outlook and what are the key signposts to watch?
EUR/USD short-term technical forecast – neutral
The Euro's drop below key support against the US dollar spells some more troubles for the single currency ahead of key US data this week.
Price facts
- In recent weeks, EUR/USD has pulled back from tough resistance around the 89-week moving average. However, EUR/USD hasn't broken any significant price pivot on the daily chart (relevant for positional investors), suggesting the setback so far is consolidation within a broader uptrend.
Sentiment
- IG Client Sentiment data shows 50% of traders are net-long EUR and 50% of traders are net-short EUR. The number of traders net-long is 19% lower from last week, while the number of traders net-short is 13% higher from last week.
Narrative
- Upbeat US data this month have triggered a repricing higher in Fed rate expectations and a scaling back of rate cuts later this year, taking the sting out of EUR/USD’s nearly five-month-long rally. Despite the recent narrowing of relative monetary policy differential, speculative EUR net-longs haven’t reversed, possibly reflecting relatively hawkish ECB in terms of the number of rate hikes.
Meanwhile, Euro area markets have so far shrugged off the huge bond supply they are facing in 2023, i.e., the risk of sovereign stress.
EUR/USD’s drop over the past couple of weeks has almost entirely been a US strength story, rather than a Euro area weakness narrative. The US Economic Surprise Index (ESI) has risen sharply during the period, while the Euro area ESI has been largely flat, but still around 20-month highs.
EUR/USD daily chart
Surprisingly strong US data since the start of the month (from services and jobs data at the beginning of the month to PPI last Thursday) had led to a reassessment of Fed rate expectations.
Markets now expect the Fed funds rate to peak around 5.30% from around 4.90% at the beginning of February, while expectations for rate cuts for later this year have been scaled back. The key focus is now on US core PCE data due Friday, which is seen rising 4.3% on-year vs 4.4% previously.
EUR/USD daily chart
On the daily technical charts, the color-coded candles based on trending/momentum indicators suggest that the consolidation within the broader uptrend continues.
On the daily charts, EUR/USD hasn’t yet broken any significant price pivot that would threaten the nearly five-month-long uptrend. In this regard, the January low of 1.0480 is immediate support. A stronger cushion is on the 200-day moving average (now at about 1.0330).
The fall below the February 13 low of 1.0650 has triggered a minor double top (the February 9 and February 14 highs), pointing to a setback toward 1.0480.
EUR/USD four-hour chart
This information has been prepared by IG, a trading name of IG Markets Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer and quarterly summary.
Start trading forex today
Find opportunity on the world’s most-traded – and most-volatile – financial market.
- Trade spreads from just 0.6 points on EUR/USD
- Analyse with clear, fast charts
- Speculate wherever you are with our intuitive mobile apps
See an FX opportunity?
Try a risk-free trade in your demo account, and see whether you’re onto something.
- Log in to your demo
- Take your position
- See whether your hunch pays off
See an FX opportunity?
Don’t miss your chance – upgrade to a live account to take advantage.
- Get spreads from just 0.6 points on popular pairs
- Analyse and deal seamlessly on fast, intuitive charts
- See and react to breaking news in-platform
See an FX opportunity?
Don’t miss your chance. Log in to take your position.
Live prices on most popular markets
- Equities
- Indices
- Forex
- Commodities
Prices above are subject to our website terms and agreements. Prices are indicative only. All share prices are delayed by at least 15 minutes.
Prices above are subject to our website terms and agreements. Prices are indicative only. All shares prices are delayed by at least 15 mins.
