EUR/USD Teeters on Edge of Technical Break Below Critical Level

The EUR/USD pair has been in a downward trend for four consecutive days following the European Central Bank's (ECB) rate hike last Thursday. On Tuesday, it fell to 1.1536, down 0.11% on the session, and is currently sitting just above its one-month low of 1.1533.

The ECB raised its deposit rate by 25 basis points to 2.50%, effective September 16, which narrowed the policy gap with the Federal Reserve (Fed) to 125 basis points for a matter of hours before the Fed widens it back to 150 basis points. The real policy rates also diverge, with the ECB's at minus 0.80 and the Fed's at plus 0.60 percentage points.

The data flow on Tuesday added to the dollar's strength, as the Eurozone ZEW economic sentiment index collapsed to 25.8 in September from 31.4 in August, a drop of 5.6 points. The pair is currently trading just above the support band at 1.1533-1.1578, with a clean break below this level opening up the path towards 1.1491 and potentially even lower.