The euro pulled back against the US Dollar on Wednesday, relinquishing some of its gains from the previous two days. Despite this retreat, the EUR/USD retains strong support, with investors betting against further rate hikes from the Federal Reserve and cautiously optimistic that struggles within the higher interest rate Eurozone will not spread, , says Justin Grossbard, founder, CompareForexBrokers.com.
The pair began trending upward in February of this year, driven by the belief that the European Central Bank, battling higher inflation, may take more time to lower interest rates than its US counterpart. Tuesday’s comparative calm could be the result of an absence of clear signals during the European session, or possibly caution in advance of key inflation figures for Germany, set to release Wednesday.
As the largest Eurozone economy, Germany wields significant influence over ECB action, and dim news for its economy could spell trouble for the entire economic area. Early forecasts predict that the Federal Statistics Office (Statistisches Bundesamt) will announce an increase of 7.3% year-on-year, far in excess of the ECB’s stated 2% target. Under these circumstances, the ECB would no doubt intervene further, creating more support for the EUR/USD pair.
The euro managed to surpass its first Fibonacci retracement, returning to the ten-month highs of early February. The new level provides important support, and euro buyers mounted a spirited defense to recent challenges. Provided they continue to hold the line, a return to February peaks seems likely, at least in the medium term.
If they can consolidate themselves above the line, which they show every sign of doing, then those February peaks will come back into focus again in the medium term. The pair is likely to face some profit-taking on the way up there, however, and there are some signs that this market may be a little over-extended. Some profit-taking seems likely as it continues its ascent, and the current market shows some signs of over-buying.
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