FX.co ★ EUR/USD

The EUR/USD pair is slightly bearish near 1.1392 versus the USD in the early part of the European session on Friday but holds within the range seen on Thursday. The pair is mainly down as the USD is performing well across the board. According to available data, the US Dollar Index (DXY), which measures the USD against six other major currencies, is trading near the eight-week high of 101.40 reached on Thursday. Market analysts expect further USD gains as Fed officials have indicated a hawkish monetary policy stance. Strategists at BBH note that the US Dollar is “powering forward against most major currencies,” citing hawkish Fed policy and the US economy's outperformance relative to other major economies, which suggests the Dollar can “keep flexing its muscles.” In particular, the strategists highlight a statement by Michael Barr, a Fed Governor, saying that “additional policy adjustments will likely be necessary to bring inflation back to target promptly,” supporting expectations of further policy tightening. Additionally, BBH highlights statements by John Williams, New York Fed President. In particular, he said that the US economy demonstrates “remarkable resilience”, but at the same time the main problem is the high level of inflation, which is “the big challenge,” implying that “another interest rate increase may become necessary by the end of the year.” Overall, Barr and Williams' comments support expectations for additional hikes in the Federal Funds rate. Although investors have backed the US Dollar more than the Euro, the latter has done very well compared to its peers on expectations that the European Central Bank (ECB) will raise interest rates. On the daily chart, EUR/USD is trading at 1.1391 and remains bearish in the short term because it is below the 20-period exponential moving average (EMA) at 1.1501. Price action on the chart is gradually falling from its recent peaks. Although the Relative Strength Index (14) is well below the 50 line at around 25, this indicator confirms a stretched market condition, not an actual reversal. From a resistance perspective, the first resistance zone sits near the 20-period EMA at 1.1501, which marks the starting resistance level bulls must break to reduce the ongoing downtrend. Before breaking this resistance level, bulls must get past the 1.1400 resistance level. From a support perspective, a breakdown below 1.1350 may lead to a further decline.