EURUSD Slumps to January Lows Amid US Dollar's Rally and ECB Rate Hike Speculation | investingLive
FUNDAMENTAL OVERVIEW
USD:
The US dollar experienced a significant surge in value across various markets over the weekend due to safe-haven demand amidst the escalating US-Iran conflict. However, the primary catalyst was the market's realization that interest rate cuts might not occur as soon as anticipated.
Higher oil prices are expected to exert upward pressure on inflation, and the ISM Manufacturing PMI data from yesterday (February 2) confirmed the market's dovish stance on the economy was misguided. The PMI remained hot for the second consecutive month, dispelling the notion of a one-off event.
Moreover, the prices index soared to its highest level since 2022, indicating persistent inflationary pressures. As a result, traders scaled back their rate cut expectations, with the total easing now projected to reach around 45 basis points by year-end, down from 58 basis points on Friday.
EUR:
On the EUR side, the macroeconomic landscape remains unchanged, but the US-Iran conflict has led to a surge in energy prices, contributing to higher inflation expectations. The Eurozone CPI data for February 3 exceeded expectations, and when combined with elevated energy prices, it fueled rate hike speculation.
The market is currently pricing in a 21% chance of a rate hike in June and a 50% chance by the end of the year. However, ECB policymakers are urging caution, warning that Middle East events could be transitory, similar to past occurrences.
EURUSD TECHNICAL ANALYSIS – DAILY TIMEFRAME
On the daily chart, EURUSD is approaching a critical swing level at 1.1575. Buyers are expected to enter the market with a defined risk below this level, aiming for a rally back towards the 1.18 handle. Conversely, sellers will seek a break below 1.1575 to increase bearish bets, targeting the 1.14 handle.
EURUSD TECHNICAL ANALYSIS – 4 HOUR TIMEFRAME
The 4-hour chart reveals no significant changes, as the nearest key level remains the swing point at 1.1575. A closer examination is required to uncover more detailed insights.
EURUSD TECHNICAL ANALYSIS – 1 HOUR TIMEFRAME
The 1-hour chart displays a downward trendline, indicating bearish momentum. If a pullback occurs, sellers will utilize the trendline as a support level with a defined risk above it to maintain downward pressure. Buyers, on the other hand, will aim for a break above the 1.1740 resistance to increase bullish bets.
UPCOMING CATALYSTS
The week ahead includes several economic indicators that might be overshadowed by the US-Iran conflict. On Tuesday, the US ADP and US ISM Services PMI will be released. On Thursday, the latest US Jobless Claims figures will be unveiled. Finally, on Friday, the week will conclude with the US Non-Farm Payroll (NFP) report. While these data points may not carry significant weight this week, they will be closely monitored for any signs of economic impact.
