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EUR/USD tests key support

By Capital.com News

14:32, 21 September 2023

Any material provided is for information purposes only and is not investment advice. Any opinions that may be provided are not a recommendation by Capital Com or its agents. We do not make any representations or warranty on the accuracy or completeness of the information that is provided. If you rely on the information on this page then you do so entirely on your own risk.

EUR/USD is currently testing a key support level after the Federal Reserve indicated a potential extension of higher interest rates.

Despite maintaining its benchmark interest rate at a 22-year high during its recent two-day meeting, the Federal Open Market Committee signalled its support for additional monetary tightening within the year and fewer rate cuts in the following year. The committee unanimously decided to keep the federal funds rate steady, ranging from 5.25% to 5.5%, aligning with the U.S. central bank's cautious approach in the latter stages of its fight against inflation.

In a statement, the committee emphasised its continued vigilance regarding inflation risks, highlighting that economic activity had been steadily expanding and job gains, while somewhat slower, remained robust.

These developments come in the wake of Tuesday's disappointing European inflation data, which reinforces the European Central Bank's stance of concluding its rate hike cycle that was announced last week.

On the back of yesterday’s newsflow, EUR/USD moved lower to retest a significant support level created by the end-May swing lows (see daily candle chart below). This support level represents six-month lows, and whilst the dominant trend in this market is firmly bearish, we may see buyers step in at such a key support level.

EUR/USD Daily Candle Chart

snapshot

If we drop down a timeframe and zoom into EUR/USD’s 4hr candle chart (below), we can see that price is already responding to support.

USD/JPY

157.98 Price
-0.580% 1D Chg, %
Long position overnight fee 0.0112%
Short position overnight fee -0.0194%
Overnight fee time 21:00 (UTC)
Spread 0.090

AUD/USD

0.68 Price
+0.370% 1D Chg, %
Long position overnight fee -0.0062%
Short position overnight fee -0.0020%
Overnight fee time 21:00 (UTC)
Spread 0.00018

EUR/USD

1.09 Price
+0.350% 1D Chg, %
Long position overnight fee -0.0086%
Short position overnight fee 0.0004%
Overnight fee time 21:00 (UTC)
Spread 0.00040

GBP/USD

1.30 Price
+0.550% 1D Chg, %
Long position overnight fee -0.0046%
Short position overnight fee -0.0036%
Overnight fee time 21:00 (UTC)
Spread 0.00110

Having broken below support during Asian trading hours, price has been driven back above the support level – forming a small bullish fakeout pattern.

EUR/USD 4hr Candle Chart

snapshot
Risk management

Support and resistance levels are never guaranteed to hold and should be complemented by price action confirmation and further analysis.

This morning’s rate decision from the Bank of England has the potential to cause outsized volatility in European currency pairs. Traders should factor this risk into their position sizing, stop placement and trade plan.

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Capital Com is an execution-only service provider. The material provided in this article is for information purposes only and should not be understood as investment advice. Any opinion that may be provided on this page does not constitute a recommendation by Capital Com or its agents and has not been prepared in accordance with the legal requirements designed to promote investment research independence. While the information in this communication, or on which this communication is based, has been obtained from sources that Capital.com believes to be reliable and accurate, it has not undergone independent verification. No representation or warranty, whether expressed or implied, is made as to the accuracy or completeness of any information obtained from third parties. If you rely on the information on this page, then you do so entirely at your own risk.

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