Published on May 29, 2023

Daily Analysis For EUR/USD 29-05-2023

EUR/USD Analysis

Key Points

• EUR/USD registers its initial daily increase in five days, bouncing back from the lowest points seen in the past 10 weeks.

• The US Dollar takes a step back as policymakers reach an agreement on the debt ceiling, although obstacles in the approval process encourage buyers of the Euro.

• The downward pressure on EUR/USD is intensified by contrasting expectations of a more aggressive stance from the Federal Reserve against concerns over a potential recession in the Eurozone.

• Furthermore, limited trading activity due to holidays in Germany and the United States is expected to restrain significant movements in the Euro, leading up to the release of Eurozone inflation data and the US Non-Farm Payrolls report.

Today's Scenario: - EUR/USD gains ground, marking its first daily increase in five days, hovering around 1.0730 during the early morning hours in Europe on Monday. This uptick in the Euro pair follows a month of losses, as market sentiment cautiously improves due to optimism surrounding US policymakers' ability to avert a potentially disastrous default. Additionally, the resizing of positions at the end of the month, coupled with public holidays in Germany, France, the UK, and the US on Monday, may further contribute to the pair's current positioning.

Over the weekend, US President Joe Biden, along with top congressional Republicans and House Speaker Kevin McCarthy, reached an agreement to raise the federal government's debt ceiling, which stands at $31.4 trillion, until January 2025. President Biden has strongly urged both chambers of Congress to approve the agreement, and McCarthy seems confident in securing the deal's passage in the House. However, some policymakers have expressed their discontent with the compromises made to prevent a default on debt payments, casting doubt on the market's optimistic outlook regarding this crucial issue.

Conversely, the positive economic data released last week, including Durable Goods Orders and the Core Personal Consumption Expenditure (PCE) Price Index, which is the Federal Reserve's preferred inflation indicator, have bolstered expectations of a more aggressive stance by the Fed. This, in turn, exerts downward pressure on the EUR/USD price. Additionally, the downward revision of Germany's Q1 2023 growth figures has renewed concerns about a recession in the Eurozone, further influencing the sentiment of European Central Bank (ECB) hawks.

In the broader market context, S&P500 Futures show slight gains, hovering near their highest levels since August 2022, with an intraday increase of 0.30% at around 4,225. Bond markets, however, remain inactive as several key exchanges are closed at the time of writing. Consequently, the US Dollar Index (DXY) retreats from its 10-week high, providing some relief for sellers of the Euro pair.

Looking ahead, preliminary reports on German and Eurozone inflation figures will be released prior to the US jobs report for May, particularly the Nonfarm Payrolls (NFP), which will influence short-term movements in EUR/USD. However, significant attention will be focused on the US Congress voting on the debt ceiling agreement.

Diagram of EUR/USD

Economic Events: -

GMT	Event	Impact	Currency
01:00	(Austria) Pentecost Monday	None	EUR
01:00	(Belgium) Pentecost Monday	None	EUR
01:00	(Euro Area) Pentecost Monday	None	EUR
01:00	(France) Whit Monday	None	EUR
01:00	(Germany) Pentecost Monday	None	EUR
01:00	(Luxembourg) Whit Monday	None	EUR
01:00	(Switzerland) Pentecost Monday	None	CHF
01:00	(United Kingdom) Spring Bank Holiday	None	GBP
01:00	(United States) Memorial Day	None	USD
06:00	(Finland) Consumer Confidence	Low	EUR
06:00	(Finland) Business Confidence	Low	EUR
09:00	(Switzerland) Myfxbook USDCHF Sentiment	Medium	CHF
09:00	(Australia) Myfxbook AUDUSD Sentiment	Medium	AUD
09:00	(Japan) Myfxbook USDJPY Sentiment	Medium	JPY
09:00	(European Union) Myfxbook EURUSD Sentiment	Medium	EUR
09:00	(United Kingdom) Myfxbook GBPUSD Sentiment	Medium	GBP
09:00	(Canada) Myfxbook USDCAD Sentiment	Medium	CAD
09:00	(New Zealand) Myfxbook NZDUSD Sentiment	Medium	NZD
09:30	(Slovenia) Retail Sales MoM	Low	EUR
09:30	(Slovenia) Retail Sales YoY	Low	EUR
11:00	(Latvia) Retail Sales YoY	Low	EUR
11:00	(Latvia) Retail Sales MoM	Low	EUR
11:00	(Ireland) Retail Sales YoY	Low	EUR
11:00	(Ireland) Retail Sales MoM	Low	EUR
23:45	(New Zealand) Building Permits MoM	Low	NZD

Buy Scenario: - A recovery above the high reached on May 24 around 1.0800 would favor the Euro, potentially driving the pair towards the high on May 18 at 1.0848 and the high on May 16 at 1.0904, till we do not advise to buy EUR/USD currency pair.

Sell Scenario: - EUR/USD has fallen below the 61.8% Fibonacci retracement level (calculated from the low on March 15 at 1.0516 to the high on April 26 at 1.1095) at 1.0738. The 20-period Exponential Moving Average (EMA) at 1.0740 is serving as a significant barrier for Euro buyers. The price action is currently following a Falling Channel pattern, wherein market participants perceive each upward correction as an opportunity to sell.

The Relative Strength Index (RSI) (14) is oscillating within the bearish range of 20.00-40.00, indicating the continuation of bearish momentum.

If the EUR/USD pair drops below the round-level support of 1.0700, the downward movement is likely to resume, potentially pushing the asset towards the low recorded on March 13 at 1.0650, followed by the low on March 03 at 1.0588. Till then we do not advise selling EUR/USD.

Support and Resistance Level: -