EUR/USD downtrend intensifies as key support levels shatter

The EUR/USD currency pair has witnessed a significant shift in dynamics, with a clear breakdown of key support levels in recent trading sessions. In this analysis, we delve into the technical aspects of this development, considering both the numbers and the broader market context.

Market overview

 Wednesday's trading session marked a pivotal moment for the EUR/USD pair. Lingering uncertainties surrounding interest rate trajectories had investors eagerly awaiting remarks from central bank officials. As the market returned after the Luther King holiday, the US dollar exhibited renewed strength, exerting considerable pressure on its counterparts.

Both the Euro and Pound found themselves in proximity to their long-term support levels against the US dollar. The London market's opening saw these declines persist. Adding to the downward momentum, Germany's general inflation rate for December fell to a mere 0.1%, intensifying speculation regarding the onset of interest rate reductions in 2024. This economic development further eroded confidence in the Euro.

Technical analysis

From a technical standpoint, sellers of the Euro on the daily chart achieved a crucial breakthrough by breaching the recent sideways market support at 1.09235. This pivotal moment coincided with the rupture of the uptrend line, a trend that had been in place since October. Subsequently, it propelled the price below its 50-day moving average, bolstering the selling sentiment.

Should the downward momentum persist, the next support level resides near the 100-day moving average (WMA100) at 1.08430, echoing price levels not seen since mid-December. In the short term, this level assumes a crucial role, potentially acting as a stumbling block for further depreciation. It raises the possibility of a temporary consolidation or even a modest retracement of recent losses. If eventually bears close below this hurdle, a sustained downward trend could lead sellers to target 1.07537 as the long-term objective.

Short-term oscillators corroborate the dominance of sellers. The Relative Strength Index (RSI) has crossed below the 50 level, entering the oversold territory. Furthermore, the Moving Average Convergence Divergence (MACD) histograms approach zero, positioning themselves below the signal line.

Alternative scenario

However, should buyers seek to regain control, they face the formidable obstacle of the broken support of the uptrend line at 1.09235. Even if this critical level is surpassed, a shift in the trend to the upside necessitates breaching the resistance at 1.09992.

Influential events

Today's speeches by notable figures, including Mr. Najel of the European Central Bank, Mr. Billy of the Bank of England, and Mr. Walter of the Federal Reserve, have the potential to shape the outlook for interest rate changes. Any delay in the Federal Reserve's interest rate reduction program or indications of timing from European banks regarding the commencement of interest rate reductions could strengthen the US dollar and perpetuate the Euro's downward trajectory in the medium term.

The EUR/USD's recent developments underscore the intricate interplay between economic indicators, central bank policies, and technical analysis. Investors and traders will keenly watch for any shifts in the balance of these factors in the coming days, as they continue to assess the currency pair's future direction.

Key levels

• Resistance 3: 1.11400.
• Resistance 2: 1.09992.
• Resistance 1: 1.09235.
• Support 1: 1.08762.
• Support 2: 1.08430.
• Support 3: 1.07537.