EUR/USD Analysis Today - 29/02: Dollar Rises Before Data


(MENAFN- Daily Forex)

  • The EUR/USD currency pair fell towards the key 1.08 level amid a broader US dollar rally and weaker euro zone consumer sentiment, which could signal the end of the February rally.
  • This week, EUR/USD gains have not exceeded 1.0866 and are stabilizing around 1.0830 at the time of writing.
  • This comes after the European Commission's Economic Sentiment Index (ESI) for February fell to -9.5, down from -9.3 and below expectations of -9.2.
  • Commenting on this, Berenberg Bank analysts said, "The euro zone economy is still going through a difficult phase. Today's economic sentiment survey suggests that the near-term risks are tilted to the downside."



Recently, the EUR/USD rate has been trending higher since mid-February, but this has been largely a result of the weakness of the US dollar amid paring the outperformance seen at the beginning of the year. This confidence data supports the uninspiring performance of the Eurozone economy and points to the continuing distress in the Eurozone that will limit the possibility of a recovery in the Euro price . According to analysts,“The risk is that the European Central Bank cuts interest rates sooner than June, which would limit the euro's gains.” This reading remains consistent with the modest economic activity in the Eurozone.“

At the same time, the decline in the European Stability Index was driven by a deterioration in confidence in all sectors of services, manufacturing, retail, and construction.
Will the Euro Rise in the Coming Days?

In this regard, Scotiabank analysts believe,“the loss of the euro against the US dollar (EUR/USD) at the slight support around 1.0850 overnight added to the negative impact of the price movement on the short-term chart .” Technically, the Euro's losses stabilized around the 1.08 level, but the price recovery, so far, has been limited. Moreover, A bounce back through the 1.0835 intraday resistance will ease the downward pressure on the Euro and put an upward move to the upper 1.08 levels on the way.”

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Overall, the recent strength of the euro-dollar can be attributed to the recent decline in the dollar price, as it corrected after a strong start to the year. We note that end-of-month flows could also be a headwind for the US dollar as March approaches, but this would support the argument that the recent US dollar weakness is more technical in nature than any fundamental change in direction. According to Convera analysts, "The dollar's downward trend may not gain much momentum given the ongoing US economic outperformance and US yields hovering near 3-month highs." They added, "The US dollar index (DXY) has found some good support around its 200-day moving average , which is currently at 1.03.73 and is trading back above 104 today."

Meanwhile, analysts said that the Federal Reserve is unlikely to lower US interest rates any time soon, even as other major central banks tend to be more cautious. Furthermore, US data is still mostly stronger while Fed officials remain very cautious about easing too early. Also,“we believe that the Fed's current accommodative market expectations still need to be adjusted. When they do, the dollar should see further gains after this current period of consolidation.”
EUR/USD Technical Analysis and Forecast:

Based on the performance on the daily chart above, the EUR/USD pair is facing selling pressure, and bearish control is likely to strengthen again if it stabilizes below the psychological level of 1.0800. clearly, bears may gain strong momentum if today's US inflation reading comes in stronger than expected, supporting the continuation of the US Federal Reserve's tightening policy for a while. Moreover, technical indicators will not move towards strong oversold levels without a move towards support levels at 1.0730 and 1.0650, respectively. On the other hand, during the same time period, as mentioned before, the bullish outlook for the performance of the EUR/USD currency pair will not strengthen without a move towards the psychological resistance level of 1.1000 again.

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