The market for foreign exchange has seen significant changes this week as the Euro (EUR) is under pressure while the US Dollar (USD) continues to climb.
A cautious stance by the European Central Bank (ECB) and robust economic data coming from the US are influencing the market for the most important currencies, including USD/JPY and EUR/USD.
The ECB’s decision to cut the deposit facility rate in 25 basis point increments to 3.25% has raised concerns about slowing the economy in the Eurozone.
The region’s inflation rate is reportedly decreasing as its Harmonized Index of Consumer Prices (HICP) declined to 1.7% in September, a significant increase.
This has diminished any expectation of a quick improvement for the euro because market participants perceive the ECB’s decision as a sign of the underlying economic decline.
The US dollar has been bolstered across the Atlantic by stronger-than-expected economic performance. The US Dollar Index (DXY) is on the rise in the United States, thanks to strong retail sales figures and decreased expectations for a flurry of rate cuts from the Federal Reserve.
Retail sales in the US increased by 0.4% in September, which was higher than expectations of an increase of 0.3% and growing faith in the US economy.
There is speculation that former US president Donald Trump’s return to power is helping to boost the dollar’s strength.
Market analysts think that Trump’s economic policy, which has historically included tax reductions and increased tariffs, would result in an environment favouring the US dollar. This has added an extra boost to the greenback over the last few months.
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EUR/USD Under Pressure as Eurozone Slows
The EUR/USD currency pair is one of the most significant victimizations of these developments as the euro struggles to make gains.
The technical analysis indicates that the EUR/USD pair is trading in an ascending and broadening wedge in the chart for daily trading, and the pair is currently undergoing negative momentum.
The price has retreated below $1.10, causing upward pressure and is close to a crucial support level of $1.0790.
A possible rebound is at hand if an indicator like the Relative Strength Index (RSI) suggests oversold conditions. The break below the support line may indicate further downward pressure.
Similar bearish tendencies are apparent on the chart for 4 hours; however, those in the $1.0780 to $1.0790 region may provide some relief.
If this support holds an initial rebound, it could reduce some selling pressure. But, a continued decline lower than these points could lead to the pair reaching the next major resistance at $1.0601.
Gold Surges Amid Geopolitical Tensions
In the midst of market volatility as well, the price of Gold (XAU) has risen to an all-time high and has crossed the $2,690 mark. The geopolitical tensions in and around the Middle East drive demand for safe-haven assets as investors rush to gold for security against uncertain times.
Although the recent increase in US retail sales led to some temporary reversals, the overall trend in gold is positive.
From a technical point of view, gold has broken out of the descending, broadening wedge pattern that appears on charts daily, indicating the strength of the upward momentum.
The following price range in gold is $3,000 to $2,800. On the chart of 4 hours, the prices are close to the $2,745 mark in the short term. Still, the RSI suggests that the market is overbought and could result in a consolidation phase ahead of further gains.
US Dollar Index (DXY) Hits Key Resistance
It is reported that the US Dollar Index, tracking the strength of the greenback compared to various currencies, has surpassed a crucial resistance level of 103.90. This is represented by the 200-day Simple Moving Average (SMA) and a red trendline on charts daily.
It is also evident that the RSI is also indicating overbought conditions, suggesting an eventual pause in the dollar’s climb. However, should the DXY break 103.90, another strong leg upward could ensue.
The chart shows a 4-hour presence of bearish divergence in the short term. This could lead to a sharp correction within the DXY. Breaks below 102.70 will confirm this correction, and a rise over 103.90 could propel the dollar higher.
GBP/USD and AUD/USD Show Mixed Performance
The GBP/USD currency pair is still in flux, just over its two-month low of $1.2974. The attempts to rebound were thwarted by the resistance at the low in September of $1.3022 and further hurdles at the July high of $1.3045.
Analysts keep an eye on the tentative trend line for upwards of $1.2903; any break below that mark could result in deeper drops.
The AUD/USD currency pair has bounced up from the lowest of $0.6659. The minor resistance is between the 55-day SMA, which is $0.6730, and the high on October 11, of $0.6759.
If these levels are breached, then the next goal for the Aussie could be the low of September, $0.6819.
EUR/JPY Stays Below Resistance
The EUR/JPY market is currently trading below the key resistance levels in the 162.89 to 164.24 range.
A bullish reversal in the medium term is not likely unless these levels of resistance are successfully broken. You can also find support between last Friday’s low and the 55-day SMA in the 161.01 up to 160.60 zone.
Also Read: Forex Update: US Dollar Holds Firm, Euro Struggles Ahead of ECB Decision
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