EUR/USD at a Crossroads as Critical Support Test Looms Large
The EUR/USD dropped 0.8%, reaching 1.063, following the European Central Bank's decision to raise its policy rate by 25 basis points and its continued pessimistic outlook.
Several factors contribute to the weakening of EUR/USD, including diminishing momentum in the higher highs and lows pattern seen since the start of the year, as well as the interest rate gap between the ECB and the Fed.
The US economy is showing strength with the Consumer Price Index (CPI) and retail sales coming in above expectations. Even though the number of new hirings is decreasing, the absence of increased layoffs is contributing to economic activity.
On the other hand, the European Central Bank (ECB) is lagging behind the US Federal Reserve in tightening monetary policy. The ECB's recent 10th rate hike to 4.5% has led to a decrease in the value of the euro and a decline in bond yields in the Eurozone.
The market had already priced in the Eurozone's stance on fighting inflation, resulting in no significant reaction to the expected interest rate hike. Additionally, concerns over rising energy prices, geopolitical issues, and China's economy may negatively impact the Eurozone.
From a technical perspective, EUR/USD extended its nine-week downward streak after breaking a crucial support level of around 1.08 in late August. The pair reached as low as 1.063, attempting to find support at May's lows.
This price level corresponds to Fib 0.382 (1.0633) based on one-year price action, suggesting a significant support point. If EUR/USD closes the week below 1.063, further downward momentum may bring it below $1.05.
Short and medium-term EMA values show a negative crossover on the weekly chart, supporting a seller-biased outlook. However, oversold conditions
Read more on investing.com
