EUR/USD Faces Pressure Amidst USD Rally and Shaky Market Sentiment

Federal Reserve Chair, Jerome Powell, commented on Thursday about persistently high inflation rates, suggesting that the monetary policy is yet to tighten. This statement bolsters predictions of another rate hike by year-end. Consequently, the 10-year US government bond yield remains elevated, approaching the significant 5% mark, strengthening the USD further. The prevailing risk-averse sentiment in the market, compounded by worries about the escalating Israel-Hamas conflict and its potential repercussions in the broader Middle East, fortifies the safe-haven appeal of the USD, pressuring the EUR/USD pair.

Additionally, fears of a pronounced economic downturn and the looming threat of stagflation have led to diminished expectations of further rate hikes by the European Central Bank (ECB). Recent signals from the ECB indicate a plateau in its rate hikes aimed at combatting inflation. Recent remarks from ECB officials also hinted at the possibility of achieving a 2% inflation rate without resorting to more hikes. These developments suggest a downward trend for the EUR/USD pair in the near term.

As the week wraps up, no significant economic data from the Eurozone or the US is slated for release.

However, the financial landscape will likely be influenced by speeches from prominent FOMC members, fluctuations in US bond yields, and the overarching market sentiment. While the EUR/USD spot prices seem poised for slight weekly gains, any substantial upward movement appears uncertain at this juncture.EUR/USD Technical OutlookRegarding the technical outlook, the EUR/USD pair recently breached the bearish channel’s upper limit, indicating a potential upward correction. However, the current bearish activity, steered by stochastic negativity, hints at a retest of the freshly breached resistance, which now serves as a support at 1.0550.

Given the conflicting signals from technical indicators, a prudent approach would be to remain on the sidelines until a clear trend is established, with critical junctures being the 1.0550 support and 1.0640 resistance. A breach below the support might rejuvenate the dominant bearish trend with a significant target at 1.0450. Conversely, surpassing the resistance could pave the way for a bullish shift, aiming for 1.0760 initially.

For the day, the anticipated trading range spans between a 1.0480 support and a 1.0665 resistance, with the overall trend being neutral.