During the previous week, the EUR/USD pair experienced a rally and reached its highest level since May 11, peaking at 1.0962 before experiencing a slight retreat. The Euro's outperformance against other currencies can be attributed to the hawkish stance of the European Central Bank (ECB). Nevertheless, the technical analysis suggests that the pair is currently overbought.
As anticipated, the ECB raised its key interest rates by 25 basis points (bps) in June. The policy statement revealed that the Eurosystem staff has revised their core inflation projections for 2023 and 2024, predicting higher levels. In a news conference held after the meeting, ECB President Christine Lagarde practically confirmed that another 25 bps rate hike is likely to occur at the next meeting.
Lagarde stated, "Unless there is a significant deviation from our projected path, it is highly probable that we will continue to raise rates in July, which should not come as a surprise." She also downplayed the lower inflation readings from the Euro Area and emphasized that price growth is expected to remain persistently high.
Lagarde's hawkish remarks, along with the upward revisions in inflation forecasts, contributed to the rally of the EUR/USD pair on Thursday.
On the other hand, the US Dollar remained under consistent selling pressure due to disappointing Initial Jobless Claims data, which indicated a figure of 262,000 for the week ending June 9.
Looking ahead to the weekend, the preliminary University of Michigan's Consumer Sentiment Survey for June will be a significant factor in the US economic agenda. With the end of the Federal Reserve's (Fed) blackout period on Friday, Fed officials are likely to comment on the future of monetary policy. According to the CME Group FedWatch Tool, the market is currently pricing in a 25 bps rate increase by the Fed in July. If policymakers attempt to guide the market towards an imminent rate increase, the US Dollar may rebound, leading to a decline in the EUR/USD pair.
Nevertheless, ECB policymakers are actively reassuring investors about their commitment to maintaining a tight monetary policy, thereby supporting the Euro. ECB policymaker and Bundesbank Chief Joachim Nagel emphasized that inflation risks are still tilted towards the upside, while Governing Council member Gediminas Šimkus expressed no expectations of an early rate cut next year.
EUR/USD Technical Analysis 18 June 2023
On the four-hour chart, the Relative Strength Index (RSI) indicator remains above 70, indicating overbought conditions for the EUR/USD pair. Additionally, the pair is trading outside the ascending regression channel, further confirming the overbought status.
If the EUR/USD pair undergoes a technical correction, the 1.0900 level (representing the Fibonacci 61.8% retracement of the recent downtrend, former resistance, and upper limit of the ascending channel) becomes a crucial support level. A four-hour close below this level could lead to further losses, with potential targets at 1.0850/60 (Fibonacci 50% retracement and mid-point of the ascending channel) and 1.0820 (200-period Simple Moving Average).
However, if the EUR/USD pair manages to stabilize above the static level of 1.0940, it could potentially target the psychological level of 1.1000, followed by 1.
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