Approaching critical technical breakout points

EUR/USD Current price: 0.9915.000

  • EU producer price index rose 43.3% year-on-year in August, higher than expected.
  • Hopes that the tightening cycle is nearing its end have boosted financial markets.
  • The EUR/USD continues to advance, but there is still some way to go before the bulls finally take control.

The EUR/USD pair extended its recent recovery to trade above the 0.9900 threshold, holding onto gains ahead of the American session. Better market mood continues to undermine demand for the US currency, falling for the second day in a row.

Speculative interest believes that the tightening cycle may be nearing an end as global rates reach levels that could risk a recession. Early on Tuesday, the Reserve Bank of Australia surprised financial markets by raising the cash rate by 25 basis points, less than the expected 50 basis points, to be the first to halt aggressive quantitative tightening. Global stocks are on the run, while government bonds are also rising, lowering yields.

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On the other hand, macroeconomic data continues to paint a bleak picture. The EU producer price index rose 43.3% y/y in August, vastly exceeding the previous 38% and higher than the expected 43.2%. The US session will bring together a few speakers on the Federal Reserve, August Factory Orders, and JOLTS job openings.

EUR/USD Short-Term Technical Outlook

The EUR/USD pair is currently trading above the 50% retracement of its recent daily decline at 0.9685, an immediate support level. The daily chart shows that the corrective advance is still developing, and although further gains are possible, they are yet to be confirmed. The pair is currently fighting with a flat 20 SMA, while the longer moving averages maintain their bearish slopes above it. Technical indicators are advancing, although momentum remains within negative levels while the RSI struggles to overcome its mid-line.

The next Fibonacci resistance is at 0.9942, which is the 61.8% retracement of the 1.0197/0.9535 decline. Beyond that, the daily bearish trend line coming from this year’s high at 1.1494 is located around 1.0070. It will take a break above the latter to confirm a more sustained recovery in the following sessions.

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In the near term, and according to the 4-hour chart, the risk is skewed to the upside. A strongly bullish 20 SMA continues to lead the way higher, while the pair broke above a moderately bearish 100 SMA. Meanwhile, technical indicators are heading north above their mid-lines with strong bullish slopes.

Support Levels: 0.9865 0.9820 0.9780

Resistance Levels: 0.9940 0.9990 1.0035

View live chart for EUR/USD

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