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EUR/USD Eyeing Bounce at Key Confluence Area

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EUR/USD PRICE, CHARTS AND ANALYSIS:

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EUR/USD FUNDAMENTAL BACKDROP

EURUSD has continued its decline this morning back toward support around the 1.0800 level. The US dollar has held onto recent gains despite improving optimism by market participants that a deal will be reached regarding the US debt ceiling.

Currency Strength Chart: Strongest – NZD, Weakest – AUD.

Source: FinancialJuice

As we have a rather muted calendar heading into the weekend all eyes remain on developments around the US debt ceiling which continues to support the US dollar. Positive sentiments were echoed from both sides yesterday with House Rep. Kevin McCarthy stating that an agreement by Sunday may be possible. The US dollar has also benefitted from rather hawkish comments of late from a host of Federal Reserve speakers who have stood firm against the idea of rate cuts in 2023.

European Central Bank (ECB) policymaker have been striking a hawkish note as well, not surprising but thus far having a limited impact on the Euro. This morning we had comments from the ECB’s De Guindos who stated that though most of the tightening is done there is still scope for further hikes. He stressed however that inflation in services remains a serious concern for the Central Bank and will be closely monitored for the rest of 2023.

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Another largely lackluster day ahead in terms of economic data releases with the docket loaded with Federal Reserve speakers. We also have some medium impact data out of the US which I do not expect to add any significant volatility to markets in the US session.

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For all market-moving economic releases and events, see the DailyFX Calendar

TECHNICAL OUTLOOK AND FINAL THOUGHTS

Looking at EURUSD as the day progresses and the US debt ceiling is likely to be the key driver for price action. Any further positive comments from either camp should cap any further USD gains and hopefully see a bounce for EURUSD, while any dithering and slowdown in talks could have the opposite effect and favoring continued US dollar strength.

From a technical perspective, EURUSD rests on a knife edge at the moment as we trade right on the 100-day MA and 1.0800 support level. The 100-day MA has proved a significant hurdle in the recent past with the pair having last traded below the MA in November of 2022. The last retest of the 100-day MA occurred in in mid-March right before the extended 500-odd pip rally higher for EURUSD, highlighting the significance of the 100-day MA once more.

Given the key support area at 1.0800 coupled with the MA we could most definitely be in for a retracement back toward the 1.1000 psychological level. There is a chance that we pierce the 1.0800 mark, but I don’t such a move as sustainable with a daily candle close below the 100-day MA the only event that may make me question a bounce to the upside. A bounce lower could find stern support at 1.0740 hence my apprehension around the sustainability of a downside break of the MA and support level at 1.0800.

EUR/USD Daily Chart – May 18, 2023

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Source: TradingView, Chart Prepared by Zain Vawda

Written by: Zain Vawda, Market Writer for DailyFX.com

Contact and follow Zain on Twitter: @zvawda

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