The Euro-US Dollar (EUR/USD) currency pair has experienced a sharp drop over the past few weeks, largely due to the strength of the US economy, as opposed to weakness in the Euro area. Despite the Economic Surprise Index (ESI) of the Euro area being largely flat, it is still at 20-month highs. On the other hand, the ESI of the US has increased significantly, mainly due to strong economic data since the start of February. These positive numbers have led to a reassessment of Federal Reserve rate expectations, which now stand at around 5.30%, up from 4.90% at the beginning of the month. The market has also scaled back its expectations for rate cuts later this year.
Upcoming Data Release and Technical Analysis
The focus now shifts to the US core PCE data, which is due on Friday. This is expected to rise by 4.3% YoY, compared to the previous 4.4%. The daily technical charts show that consolidation within the broader uptrend continues, as relevant for positional investors. The color-coded candles based on trending/momentum indicators suggest that the January low of 1.0480 is the immediate support. The 200-day moving average provides a stronger cushion, which now stands at about 1.0330.
The fall below the February 13 low of 1.0650 has triggered a minor double top, pointing towards a setback towards 1.0480. However, EUR/USD has not yet broken any significant price pivot that would threaten the nearly five-month-long uptrend.
Conclusion
The current trend in EUR/USD is mainly driven by strong US economic data, and a reassessment of Fed rate expectations. Although the Euro area ESI is at 20-month highs, the market remains cautious, with a focus on the upcoming US core PCE data. It remains to be seen whether the trend will continue, or whether there will be a reversal in the near future. The technical analysis shows that the consolidation within the broader uptrend continues, and that the immediate support is at 1.0480, with a stronger cushion at the 200-day moving average. For now, traders will be watching closely to see how the market reacts to the upcoming US core PCE data.
