The EUR/USD rate benefited significantly when the European Central Bank indicated in February that a significant shift in its monetary policy may be in the pipeline, and potential differences with the Fed's policy process could eventually help the pair's recovery. But those gains collapsed quickly, amid fears of a war in Europe that would make the bloc's economy more difficult to recover from the effects of the epidemic. The EUR/USD pair closed the week's trading stable around the 1.1322 support level.
The single European currency - the euro - has fallen sharply against the US dollar since the early days of 2021, but the downtrend was halted in its tracks last February when profit-taking by the market on bets in favor of the dollar was followed by signs of a watershed change in the European Central Bank's policy stance. . This has led analysts and economists to update forecasts waiting for the European Central Bank to start raising interest rates in late 2022 or sometime in the early months of next year, with many suggesting it may call for an end to the era of negative interest rates. in Europe.
Commenting on this, Zack Bundle, FX analyst at Goldman Sachs says, “The implementation of negative rates in 2014 led to widespread outflows from European fixed income markets and a significant underperformance of the euro, beyond what can be explained by changes in spreads and oil prices. . Likewise, an exit from negative rates may help stem continued outflows of fixed income and support the currency.”
The analyst added, “Therefore we are revising our year-end forecasts for the EUR/USD pair for the next three years to 1.20 (from 1.15), 1.25 (from 1.20) and 1.30 (from 1.25). These forecasts point to a recovery in the EUR/USD to “fair value” by the end of 2024.
And before the ECB raises interest rates, it will first have to finish both of its quantitative easing programs and decide what to do about the trillions of eurozone government bonds that have been raised by them during the pandemic as well as over the years since 2015. That is The main area in which monetary policy normalization of the European Central Bank can look different from the ongoing operations in the Fed, the Bank of England and some other central banks, although this difference is not necessarily negative for the euro, the dollar and other European exchange rates.
According to the technical analysis of the pair: There is no change in my technical view of the price performance of the EUR/USD currency pair. The general trend is still bearish and the breach of the psychological support 1.1300 will reinforce the position of the bears to move further downwards. Accordingly, the next most important support levels may be 1.1275 and 1.1180, respectively. On the upside and according to the performance on the daily chart, the bulls will need to breach the resistance levels 1.1490 and 1.1555 to control the upward trend and change the current downside direction.
Today, the EUR/USD may move in narrow ranges due to the American holiday and the markets and investors' anticipation for any military move in Europe.
