The euro-dollar (EUR/USD) pair is facing ongoing downward pressure as it heads towards its sixth consecutive day of declines, reflecting a broader weakening of the euro against the US dollar. The currency pair’s performance is being influenced by both technical and macroeconomic factors, as the EUR/USD hits new lows, and market sentiment shifts in favor of the US dollar amid rising yields and investor uncertainty. Meanwhile, the EUR/GBP is seeing a slight recovery from its multi-year lows, as the pound sterling faces its own challenges.
EUR/USD continues its descent after reaching a peak of $1.0629 last Friday. Since then, the currency pair has dropped significantly, marking its sixth consecutive day of losses. As it approaches the early December low of $1.0461, traders are now eyeing the next critical support level at $1.0333, which was the November low.
The persistent weakness in EUR/USD is being attributed to a variety of factors, including the US Federal Reserve’s hawkish stance on interest rates, rising Treasury yields, and a strengthening dollar. As the US dollar continues to gain strength, largely due to expectations of further rate hikes and a robust economic outlook, the euro has struggled to maintain upward momentum. The eurozone’s ongoing economic challenges, including sluggish growth and inflationary pressures, are further exacerbating the currency’s struggles.
Despite this continued downward movement, analysts believe there could be potential for a near-term rebound if the pair finds support at the $1.0461 level. If EUR/USD fails to hold above this support, the next significant target will be the $1.0333 low. A break below this level could signal a further decline toward parity, a threshold that traders have been monitoring closely in recent weeks.
On the other hand, the EUR/GBP pair has been making a modest recovery, bouncing off a multi-year low reached in early December. The euro had slumped to as low as £0.8226 against the pound, a level last seen in March 2022 when it touched the £0.8204 mark. This sharp depreciation of the euro against the pound was largely driven by diverging monetary policies between the European Central Bank (ECB) and the Bank of England (BoE), as well as the overall strength of the UK’s post-Brexit economy.
However, recent movements in EUR/GBP show a recovery, with the pair finding resistance at the £0.8260 to £0.8271 area. This level now marks a critical point for traders, as it represents the previous low before the euro’s sharp drop. If the euro can break through this resistance zone, the next key target could be the November to December resistance line at £0.8304.
The recovery in EUR/GBP is being supported by a slight shift in market sentiment, as the European Central Bank’s tightening cycle is expected to continue, providing some support to the euro. However, the recovery remains fragile, and any signs of strength in the pound or further weakness in the eurozone economy could quickly reverse the trend.
The British pound has been under significant pressure recently, with GBP/USD encountering resistance at the September-to-December resistance line. After struggling to maintain upward momentum, the pair has retraced towards Monday’s low of $1.2617, and further declines could see the price testing the mid-November low of $1.2597.
GBP/USD is also facing resistance in the $1.2715 to $1.2750 range, which was established in late November. The key 200-day simple moving average (SMA) at $1.2818 is another significant resistance point that traders will be watching closely. The inability of the pound to break through these levels suggests that the bearish trend may continue unless there is a clear catalyst to push the pair higher.
The challenges for GBP/USD are primarily linked to the ongoing uncertainty surrounding the UK economy, particularly in light of inflationary pressures and the Bank of England’s cautious approach to monetary tightening. While the pound has been buoyed by relatively strong economic data, concerns over the country’s long-term growth trajectory and its ongoing relationship with the European Union remain key factors that could limit its upside potential in the short term.
For EUR/USD, the focus will remain on whether the pair can find support at $1.0461 or whether it will continue its decline towards the $1.0333 low. A sustained break below this level could open the door for a more significant downtrend, especially as the US dollar remains supported by a more aggressive Fed and a positive economic outlook in the US.
Similarly, EUR/GBP’s recovery will depend on whether the euro can break above its immediate resistance at £0.8260 to £0.8271. If this happens, the focus will shift to the next major resistance level at £0.8304. Traders will also be monitoring any changes in the Bank of England’s policy stance, which could influence the pound’s direction against the euro.
For GBP/USD, the resistance at $1.2715 to $1.2750 will remain crucial. A failure to break through these levels could prompt further downside movement, with the potential for the pair to test the $1.2597 low again. On the upside, the 200-day SMA at $1.2818 will be the next major hurdle.
In summary, while EUR/USD continues to face downward pressure, EUR/GBP is making a slight recovery from multi-year lows. GBP/USD, however, remains under pressure, with the pound struggling to maintain upward momentum despite attempts at recovery. The key technical levels for each pair will likely dictate the market’s next moves, and traders will be closely watching these levels for any signs of breakout or reversal. As the European Central Bank and Bank of England continue their respective policy actions, these currency pairs will remain influenced by both global economic factors and domestic monetary policy decisions.
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