EUR/USD Daily Chart Analysis – 2024-02-05

The EUR/USD pair shows a bearish technical posture following a significant drop on the back of a strong U.S. jobs report. The fall from 1.0890 to 1.0780, driven by the jobs data and resultant higher U.S. yields, has pushed the pair below the pivotal 200-Day Moving Average (DMA) at 1.0787, which now stands as potential resistance.

In the wake of substantial USD gains on Friday, a corrective pullback is within the realms of possibility, particularly if U.S. rates stabilize or retract. The currency pair’s inability to maintain levels above the 10- and 200-DMAs, as well as the base of the daily Ichimoku cloud, underscores the control exerted by bearish forces.

Technical indicators have shifted to a ‘Strong Sell’ suggesting significant downside momentum. The Relative Strength Index (RSI) is declining, hinting at growing bearish momentum, and the appearance of an inverted hammer candlestick on the daily chart further indicates potential continuation of the downward trend.

The pair remains under pressure from diverging monetary policy trajectories between the European Central Bank (ECB) and the Federal Reserve. The surprisingly robust U.S. labor market data has dialed back expectations of a near-term Fed rate cut, reinforcing the U.S. dollar’s appeal.

The widening spread between U.S. and German yields, reflecting a stronger economic outlook and higher interest rate environment in the U.S., adds to the bearish narrative for the EUR/USD. Furthermore, investors will be closely monitoring the U.S. ISM Non-Manufacturing PMI, especially the employment component, for additional clues on the labor market’s strength.

Overall Market Sentiment:

The market sentiment for EUR/USD, considering the confluence of technical and fundamental factors, can be delineated as:

• Positive Sentiment: 10% – Acknowledging the possibility of a short-term retracement after recent sharp declines.
• Negative Sentiment: 70% – Reflecting the dominant bearish technical indicators and the impact of strong U.S. economic data on interest rate differentials.
• Neutral Sentiment: 20% – Considering some uncertainty ahead of upcoming U.S. economic releases, which may either confirm or adjust the current bearish trend.

The sentiment is overwhelmingly negative, suggesting that the market is braced for potential further downside movement in EUR/USD. However, the noted percentage of neutral sentiment acknowledges the ever-present potential for data-driven volatility that could sway market perceptions in the near term.