- The EUR/USD pair came under renewed downward pressure on Thursday.
- European Central Bank policymakers want markets to know they are not looking to raise interest rates in 2022.
- The dollar is gaining momentum as the Federal Reserve begins reducing asset purchases.
EUR / USD It turned south after a modest recovery on Wednesday and began moving towards its 2021 lows on Thursday.
European Central Bank (ECB) Policy makers’ comments on interest rate expectations and the US Federal Reserve’s decision to reduce monthly asset purchases highlighted divergent policies among these central banks.
European Central Bank President Christine Lagarde said on Wednesday that the conditions in which the bank needs to raise interest rates are “unlikely” to be satisfied next year. On a similar note, ECB Governing Council member Pablo Hernández de Cos noted that “the ECB’s future guidance does not support the market’s view of a first rate hike in the third quarter of 2022 nor at any time shortly thereafter.” Finally, board member François Villeroy de Galhau reflected the same sentiments by saying that there are No need for the European Central Bank to raise interest rates next year.
On the other hand, the Federal Reserve decided to reduce its asset purchases by $15 billion per month, starting in mid-November.
Federal Open Market Committee Chairman Jerome Powell They confirmed that they will not automatically raise the policy rate when the quantitative easing program ends but this suspension does not appear to have a noticeable impact on market expectations.
According to the CME Group FedWatch Tool, the markets have a 61.5% chance of a price increase by June 2022, virtually unchanged from the day before.
As is currently the case, attempts to recover the EUR/USD are likely to be technical in nature and remain limited with the fundamentals favoring the dollar over the common currency.
Technical analysis of the EUR/USD pair
The 2021-low set at 1.1524 corresponds to the next target on the downside. With a decisive move below this support, the pair can extend its slide towards 1.1500 (psychological level) and 1.1440 (former resistance). Meanwhile, the 4-hour chart’s Relative Strength Index (RSI) is now near 40, indicating that there is more room to the downside before the pair becomes technically oversold.
On the other hand, the first resistance line is at 1.1600 (psychological level) before 1.1620 (200-period SMA, 100-period SMA, 23% Fibonacci retracement of September downtrend). In the event that buyers manage to push the price above the latter, the next hurdle can be seen at 1.1670 (38.2% Fibonacci retracement).