The Euro experienced a significant drop on Wednesday, marking a 0.5% loss, the largest daily decline since April 30th. This downward movement was driven by a wave of risk aversion in the market. Despite this sharp fall, the currency found support in the strong range of 1.0790/80, which includes the top of the thick daily cloud, the 200DMA, and the Fibonacci 38.2% level of the rally from 1.0601 to 1.0895. This support level is crucial as bears are currently seeking new signals to determine the next direction for the Euro.
In the short term, the Euro’s movement is hindered by a bearish candle from Wednesday, the formation of a failure swing pattern, and the bearish crossover of the 10/20DMA. However, the momentum remains positive on the daily chart, indicating that the larger uptrend from 1.0601 is still intact. As long as the price holds above the 200DMA, Fibonacci support, and the daily cloud top, there is potential for a healthy correction to occur if the price rebounds strongly.
Fundamentally, the dollar is currently favored over the Euro. This is due to diminishing expectations of a Federal Reserve rate cut in the near future, as inflation remains stable. Market participants are closely watching key economic events such as the release of the US revised Q1 GDP and weekly jobless claims on Thursday, as well as the PCE report on Friday, which is the Fed’s preferred measure of inflation. These events will provide fresh signals for the market and may influence the direction of the Euro.
A firm break below the 1.0780 zone would signal strong bearish momentum for the Euro. However, if the currency manages to surpass the initial resistance at 1.0816 (the 20DMA), it could alleviate the immediate downside pressure. To confirm a bullish trend, the Euro would need to extend its gains above the 10DMA at 1.0838. Key resistance levels to watch include 1.0816, 1.0825, 1.0838, and 1.0860, while crucial support levels lie at 1.0780, 1.0748, 1.0724, and 1.0700.
Overall, the Euro’s consolidation phase presents a crucial juncture for traders, as technical and fundamental factors continue to vie for dominance in the market. The resolution of these conflicting signals will determine the future direction of the Euro against the dollar.