Chart Of The Day: EUR/USD Faces Stiff Technical And Macro Resistance 

The EUR/USD was up 1% this morning, showing some follow-through in bullish momentum from earlier in the week. It was helped along with improved risk sentiment across the board, with stocks, cryptos, and metals also trading higher. But with the Eurozone economy at risk of falling into a recession amid the energy crisis and high levels of inflation, the EUR/USD bears could re-emerge and prevent it from rising further. 

The EUR/USD bulls have a lot of wood to chop and until the charts show a clear reversal pattern, this week’s recovery should be treated as an oversold bounce. In fact, with the EUR/USD testing the next band of resistance here around 1.0100 to 1.0150 (shaded area), there is the risk that the next wave of selling could resume around the current levels. Short-term support is seen around 1.0000 to 1.0030. A decisive move back below this range is what could potentially trigger the next slide. 

Although the EUR/USD didn’t initially respond positively to the ECB’s decision to hike interest rates by 75 basis points yesterday, expectations of a couple of more aggressive hikes later in the year have certainly helped to stem the bearish momentum. But investors feel that demand could weaken so sharply that the front-loading of ECB rate hikes could end sooner than expected. Thus, the rate hikes are not providing the single currency much support right now.

The focus for today will be on the meeting of EU energy ministers who will discuss among other things price caps for Russian oil and gas. There is certainly the risk of retaliation from Russia if those price caps are approved. Russia could, for example, suspend the remaining oil and gas shipments coming into the EU, which could trigger a fresh wave of euro and equity selling. 

So, while a rebound back above parity is a positive sign for the EUR/USD, I think it is far too early to suggest it has bottomed out. Not only does the Eurozone economy face major headwinds, but the U.S. Federal Reserve remains determined to curb price pressures with further big rate hikes. The world’s largest economy is also holding its own compared to the Eurozone which should keep the dollar supported on the dips.