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Euro is Updating Record Highs

2/2/2023 10:40 AM

The EUR/USD pair is developing a strong "bullish" momentum, formed the day before, when the market reacted to the publication of macroeconomic statistics, as well as the results of the US Federal Reserve's monetary policy meeting. The instrument is trying to consolidate above 1.1020; however, some investors prefer to wait for the results of the meeting of the European Central Bank (ECB): an interest rate hike of 50 basis points is projected, as well as a sustained pace of rate hike for some time to come, which in turn will narrow the existing gap in the rates and allow the European currency to appreciate.

In turn, the US Federal Reserve adjusted the rate by 25 basis points. The Chair of the Fed, Jerome Powell, commenting on the decision and plans for the future, noted that he is in favor of further tightening of monetary policy. According to the official, it is still somewhat premature to talk about a victory over inflation, despite the fact that the regulator has achieved notable success in this direction. In addition, he believes that an increase in the interest rate below the economic potential is the inevitable consequence for the economy, which will have to be overcome in order to stabilize the situation in the long term.

Macroeconomic data from the eurozone also provided significant support for the single currency: the Consumer Price Index fell by 0.4% in January, repeating the dynamics of the previous month, and in annual terms it slowed down from 9.2% to 8.5%, which exceeded market expectations by 0.5%. At the same time, analysts point out that due to technical problems data from Germany were not included in the final statistics. Analysts at the United Nations (UN) Department of Economic and Social Affairs note in a January report that economic growth in the eurozone countries will slow down to 0.2% compared to an estimated 3.3% in 2022, when the authorities began to weaken quarantine restrictions imposed in connection with the COVID-19 pandemic, and the release of pent-up demand stimulated economic activity. With the European Union continuing its efforts to reduce reliance on fossil fuels from the Russian Federation, the region remains vulnerable to energy supply disruptions, including shortages of natural gas.

Bollinger Bands in D1 chart show moderate growth. The price range is expanding but it fails to conform to the surge of "bullish" activity at the moment. MACD indicator is growing, having formed a new buy signal (located above the signal line). Stochastic retains upward direction but is located near its highs, which indicates the risks of overbought euro in the ultra-short term.

Resistance levels: 1.1050, 1.1100, 1.1150, 1.1200. | Support levels: 1.1000, 1.0928, 1.0850, 1.0800.

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