EUR/USD is treading water near 1.0910, making a strenuous effort to preserve the prior day’s rebound off the monthly low as European trading exhibits lethargy on a subdued Tuesday morning. This muted trading vividly encapsulates traders’ nervous anticipation ahead of the critical US Retail Sales data for July. Adding to the restraint on the Euro’s immediate movements are ongoing holidays in parts of the Eurozone.
Nonetheless, Euro sellers remain firmly in control, as reflected by the bearish MACD signals and the decisive breach of a key ascending trend line dating back to September 2022. This trend line, together with the 100-DMA, forms a formidable resistance zone between 1.0980 and 1.0930, respectively. Further bolstering the Euro bears’ resolve is the absence of the oversold RSI (14) line, suggesting there may be more room for the currency to fall before hitting oversold conditions.
Given this setup, the EUR/USD pair appears to be gearing up to challenge the significant 1.0780 support confluence, where the 200-DMA is intertwined with a nine-month-old rising trend line. A break below this level could open the gates for a move towards May’s low of around 1.0635.
On the flip side, if the Euro can muster a clear break above the 100-DMA level, currently residing around 1.0930, it may reinvigorate EUR/USD bulls. However, this bullish scenario would require further confirmation from the support-turned-resistance line extended from September 2022, which is now situated close to 1.0980.
If the Euro manages to sustain strength beyond 1.0980, it may set its sights on a move towards the psychologically significant 1.1000 mark, corresponding with April’s high.
Relevance for South Africa
For South African investors and traders, the EUR/USD dynamics are of significant interest. The Rand (ZAR) often takes cues from the Euro, given the close economic ties between the Eurozone and South Africa. A weaker Euro generally translates to a weaker Rand, as it may lead to reduced demand for South African exports in its key European markets. Furthermore, many South Africans have investments in European markets, making the EUR/ZAR exchange rate a critical watchpoint. This is especially pertinent now, as South Africa looks to its European trading partners for economic recovery support following the COVID-19 pandemic.
Consequently, ongoing Euro weakness, in line with EUR/USD price action, could imply potential ZAR softness, influencing South African import and export prices, and thereby contributing to broader economic implications for South Africa at a time when the nation is navigating its path to recovery.