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The euro’s rebound against the US dollar on Monday from near-strong support could be a sign that the single currency isn’t ripe to break lower ahead of the key Euro area CPI data due later this week. From a macro perspective, the story by and large so far this month has been surprisingly strong US data, as reflected in the jump in the US Economic Surprise Index to a 10-month high.

Euro area data have been less upbeat – the Economic Surprise Index is still in positive territory but retreated since the beginning of February. This week, preliminary February CPI inflation data from Germany (Wednesday) and the Euro area (Thursday) will be closely watched. Ahead of the data, long-term euro zone expectations rose to a new 10-month high on Monday. So far, headline Euro area inflation is easing, but core inflation remains sticky. Rate futures are pricing in around 150 basis points of ECB rate hikes by September, largely unchanged from early February. 

EURUSD D1 02 28 2023 1144
On technical charts, EUR/USD posted a bullish engulfing pattern on the daily candlestick charts on Monday as it nears a fairly strong cushion at the January low of 1.0480, also the price objective of a minor double top (the February 9 and February 14 highs). See “EUR/USD Price Setup: A Bit More Downside Within a Broader Consolidation?”, published February 20.

This support is crucial as any break below could open the way toward the 200-day moving average (now at 1.0330). Importantly, such a break would disrupt the higher-top-higher-bottom pattern since September, that is, a risk to the five-month-long uptrend. 

EURUSD W1 02 28 2023 1141

 

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