The Euro has been on an upward trajectory since the beginning of the month, gaining momentum against the US Dollar. This development is the subject of analysis by economists at Société Générale, who have been closely observing the EUR/USD pair and the broader market dynamics influencing its movement. The EUR/USD pair has shown significant resilience, recently breaking through the upper limit of its small base, a move indicative of regained upward momentum. This trend is corroborated by the daily Moving Average Convergence Divergence (MACD) entering positive territory and the pair reclaiming its 200-Day Moving Average (DMA), which had been relatively flat. These technical signals suggest a strong potential for further upside.
Currently, the pair is approaching the 1.0960 level, representing the 61.8% Fibonacci retracement from its July position. While a minor pullback might occur, the pivot high near 1.0750 is expected to provide robust support. Should the pair successfully surpass the 1.0960 level, the next significant resistance is anticipated at the 1.1065/1.1080 levels, based on graphical analysis.
USD Outlook Amidst Possible Rebound
The US Dollar Index (DXY) experienced a significant 1.8% decline last week, marking its largest drop since mid-July. This movement has prompted Société Générale's economists to assess the future trajectory of the Greenback. Following a close below its 200-DMA at 103.62, the DXY now faces the risk of a deeper retracement towards the 102.55 level. In a more bearish scenario, the decline could extend towards the 100 level, particularly if real yields continue to fall towards 2% and the nominal 10-year US Treasury yield dips below the 4.36%/4.33% threshold. However, with the Dollar nearing oversold levels, a rebound might be on the horizon.
A key factor in this scenario is the potential impact of oil price dynamics, specifically the possibility of Saudi Arabia/OPEC+ extending production cuts. Such a move could influence market perceptions regarding a soft landing in the US economy and expectations of a first-rate cut in the first half of 2024. These elements have been fundamental in the recent Dollar profit-taking trend.
In conclusion, the EUR/USD pair’s movement towards the 1.1065/1.1080 range is underpinned by a combination of technical indicators and broader economic trends. Simultaneously, the outlook for the US Dollar remains complex, hinged on a balance of factors including oil prices, yield dynamics, and market speculation about future Federal Reserve actions. As these factors continue to unfold, they will undoubtedly play a critical role in shaping the trajectories of major currency pairs, including EUR/USD.
