In the early hours of Monday’s Asian session, the EUR/USD pair finds itself in a tight trading range, hovering just above the mid-1.0500s. The first day of the week witnesses the currency struggling to establish a clear direction as it grapples with various market forces.
The daily chart paints a bearish picture, depicting the formation of a downward-sloping channel over the past two-and-half months. This trend signals a short-term downtrend, with technical indicators supporting the bearish sentiment. The Relative Strength Index (RSI) on the daily chart, having recovered from oversold conditions, aligns with the emergence of a death cross, emphasizing the prevailing negative outlook.
The key psychological level of 1.0700 becomes a crucial point for traders, as a sustained strength beyond this mark is required to counter the downward pressure. Failure to breach this level could solidify the negative bias, potentially leading to further downside movements.
The market sentiment is notably influenced by expectations of continued policy tightening by the Federal Reserve (Fed), driving up US Treasury bond yields and supporting the US Dollar (USD). Simultaneously, doubts about additional rate hikes by the European Central Bank (ECB) act as a headwind for the EUR/USD pair. However, the risk-on sentiment in the market restrains significant bets on the safe-haven Greenback, offering some support to the Euro.
Technically, a breach below the daily low at 1.0555 would reinforce the bearish stance, pushing spot prices below the psychological mark of 1.0500. This level coincides with the lower boundary of the descending channel, serving as a pivotal point. A convincing break below could open the path for further declines, targeting the 1.0400 round figure.
Conversely, resistance is anticipated at the 1.0600 level, followed closely by Friday’s swing high around 1.0615. Surpassing these hurdles could lead to a short-covering rally, potentially propelling the pair towards the trend-channel barrier near the 1.0700 round figure. Sustained buying momentum would signal a potential reversal, favoring bullish traders in the near term.
As uncertainties persist in the market, traders remain watchful of key levels and technical signals, awaiting decisive moves that could define the trajectory of the EUR/USD pair in the coming sessions. The interplay of global economic factors, central bank policies, and market sentiment continues to shape the dynamics of this currency pair.