EUR/USD sinks into key support territory with eyes on break of 0.9703

• EUR/USD bears are in control, but the daily structure is still intact.
• The bulls could be about to move from a key support.

The EUR/USD fell on the day to test a key support zone between 0.9750 and daily low of 0.9730. The price is under pressure from a stronger US dollar after the previous day’s Federal Open Markets Committee meeting, which ended with an explosion in risk assets due to comments from Fed Chairman Jerome Powell.

Treasury yields soared on Thursday, with the two-year bill rising towards 5% as Powell said the “final level” of the US central bank’s policy rate would likely be higher than expected. previously estimated. He said so after the Fed announced that it had raised interest rates by 75 basis points, as expected, to bring its target range to 3.75%-4.0%.

The divergence between the ECB and the Fed weighs

However, bond and equity markets have sold on the hawkish stance, supporting the US dollar, and remained under pressure on Thursday, as traders are evenly split on the odds of a 50% rate hike. and 75 basis points in December. The top Fed funds rate is seen rising to at least 5%, up from previous views of between 4.50% and 4.75%, which is fueling a divergence between the Fed and the Bank. European Central Bank, given ECB Governor Christine Lagarde’s dovish rhetoric.

Lagarde emphasized the reliance on data and the meeting approach after the meeting that took place last week. There was no talk of ending the QE reinvestment policy. Subsequently, Rate Markets lowered ECB expectations for further rate hikes by around 25 basis points yesterday and are now pricing in 57 basis points for the December meeting with the ECB deposit rate peaking at around 2.6%.

EUR/USD technical analysis

The above analysis was released after Wednesday’s FOMC and it stated that the daily chart was heading lower as it attempted to break the trend line. The last leg of the M pattern is relatively short compared to the front of the formation, so it could be expected to extend lower in the coming sessions on Thursday. However, 0.9700 could be a tough nut to crack.”

Price has extended the last leg of the M formation and a correction is expected at this juncture towards the neckline, or at least towards the 38.2% Fibonacci level near 0.9830. Also note that price is now to the rear of the trend line, outside of the symmetrical triangle, but has yet to break the daily structure of 0.9703.