EUR/USD is holding lower ground near 1.0850 heading toward the European opening bells. The pair is treading water amid renewed US Dollar strength even as risk sentiment improves on US debt ceiling progress. All eyes remain on the US debt ceiling updates and ECB-speak.
The Relative Strength Index on the four-hour chart declined below 30, pointing to oversold conditions in the near term for EUR/USD. In case the pair stages a technical correction, 1.0850 (static level, 20-period Simple Moving Average (SMA)) aligns as interim resistance ahead of 1.0900 (psychological level, static level). A four-hour close above the latter could discourage sellers and open the door for an extended recovery toward 1.0930 (50-period SMA).
On the downside, 1.0800 (Fibonacci 50% retracement level of the latest uptrend) aligns as the next bearish target ahead of 1.0740 (Fibonacci 61.8% retracement).
EUR/USD has lost its traction and dropped to its weakest level in over a month below 1.0850 early Wednesday. Although the pair’s technical outlook points to oversold conditions, sellers could look to retain control unless there is a noticeable improvement in risk mood.
Although investors have turned optimistic about the US avoiding a default following the latest round of debt limit talks on Tuesday, markets remain risk-averse mid-week. The Euro Stoxx 50 Index is down nearly 0.3% in the early European morning and Dow Futures lose 0.75%.
Following his meeting with US President Joe Biden and other top congressional leaders on Tuesday, top congressional Republican Kevin McCarthy told reporters that it was possible to get a deal on raising the debt ceiling by the end of the week.
In the second half of the day, Building Permits and Housing Starts data for April will be featured in the US economic docket. Richmond Federal Reserve Bank President Thomas Barkin told Bloomberg on Tuesday that he was concerned about the commercial office sector. In case Building Permits, which are forecast to rise 3% following the 7.7% decline recorded in March, fall further in April, the US Dollar could have a difficult time gathering strength in the second half of the day.
Nevertheless, investors will continue to pay close attention to risk perception and comments from central bank officials. If Wall Street’s main indexes turn south after the opening bell, the USD should be able to stay resilient against its rivals and weigh on the pair.
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