- Since the start of this week's trading, the overall performance of the price of the currency pair EUR/USD has been in attempts to move upward with gains that reached the resistance level of 1.0635, which is stable around it at the time of writing the analysis.
- This rebound is still cautious and requires strength factors to confirm that the pair's trend has turned bullish.
- There may be an opportunity for this if US inflation numbers come in below expectations.
In a new research brief, one of Europe's largest banks has lowered its forecast for the Euro/Dollar (EURUSD) exchange rate, however, the exchange rate is still expected to rise by the beginning of 2024.
In this regard, economists at Deutsche Bank say that they are still neutral about the euro against the dollar from a tactical point of view, but they have reduced their expectations for the currency pair. One of the major changes made in the latest edition of Deutsche Bank's monthly "House View" report is the postponement of the expected timing of the US Federal Reserve's first interest rate cut.
The US dollar has outperformed its counterparts since late July, as markets came to a view that the Federal Reserve would keep US interest rates at high levels for an extended period. Market-implied interest rate cut expectations for 2024 were lowered significantly after the Fed's September 20 policy meeting kept alive the possibility of a November rate hike, while forecasts showing the amount of interest rate cuts expected to fall were lower. next year in a big way.
Deutsche Bank adds in its report that “We are delaying the timing of the Fed’s cuts, but we still expect a moderate recession to lead to greater easing than the market is pricing in.”
Meanwhile, economists point to the continued resilience in the US economy as the reason the Fed needs to keep interest rates high, which in turn raises US bond yields relative to those in the eurozone and inspires demand for the US dollar.
“The main reason why the EUR/USD pair failed to rise this year is the relative outperformance of US growth compared to Europe.” “The Fed remains the most important catalyst for the move toward a lower dollar. While the US inflation picture looks increasingly benign, the outperformance in growth supports the US dollar,” added Deutsche Bank.
However, economists believe that the growth divergence between the EU and the US has peaked with forward-looking indicators improving in Europe and deteriorating in the US. This could help the euro rise during the beginning of the year. Deutsche Bank says it has lowered its year-end forecast for EUR/USD from 1.15 to 1.07 due to the recent outperformance of the US dollar. The pair is expected to rise at 1.15 by the end of the second quarter of 2024 and 1.20 by the end of next year.
On another level, regarding monetary policy the Spanish Economy Minister Nadia Calvino welcomed the possibility that the European Central Bank would keep borrowing costs unchanged after an unprecedented tightening cycle.
“They will pause for a while, and I think that is very wise because you have countries like Spain that have strong growth and low inflation,” she said yesterday in Marrakesh, where she is attending the annual meetings of the International Monetary Fund and the International Monetary Fund.
For its part, the European Central Bank has raised interest rates for ten consecutive meetings and indicated that it is unlikely to take any further step at its meeting on October 26. Some policymakers have indicated that they believe the peak of tightening has now been reached, while others refuse to rule out the possibility of further action. Calvino previously expressed hope that the ECB had reached the end of raising interest rates.
EUR/USD Technical Outlook
According to the performance on the daily chart below, an upward channel has begun to form for the currency pair EUR/USD. This channel will strengthen and the general direction will turn upward if the Euro moves towards the resistance levels of 1.0770 and 1.0830, respectively.
On the other hand, over the same time period, the move towards the support level of 1.0520 will once again be important, as the bears will confirm that they control the performance and the hopes of the current rise will evaporate. Today, attention is turning to the US inflation numbers, which will have a strong and direct reaction to the future of the US Federal Reserve’s policy.
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