- The EURO-Dollar exchange rate (EUR/USD) enters this week's trading under the grey cloud of the short-term downward trend for 2024, which could extend in the coming days if the US Federal Reserve backs away from US interest rate cuts tomorrow (Wednesday) and we receive a stronger-than-expected US jobs report.
- Recently, the EUR/USD fell below the psychological support level of 1.0800 as we predicted earlier, losing to 1.0795 before stabilizing around 1.0832 at the time of writing.
At the same time, those looking for a stronger dollar are facing some disappointment as the euro-dollar finds some reliable support above the 1.0825-1.0850 area. Therefore, we are wary of a strong rebound from these areas if the US Federal Reserve is not strong in its response against the dollar and market expectations to cut interest rates for the first time as early as March.
Will the EURO Rise in the Upcoming Days?
In this regard, Antti Ilvonen, an analyst at Danske Bank, says, “The US Federal Reserve is in a comfortable position regarding both aspects of its dual mandate. Calming US inflation requires lowering interest rates towards neutrality, but strong growth and Labor markets allow the US Federal Reserve to move gradually.”
However, he warns that the recent decline in US bond yields, driven by expectations of generous interest rate cuts in 2024, leaves the market vulnerable to a reaction from Powell. This is because increased bets on lowering US interest rates are reflected in lower bond yields, which affects lending rates.
Thus, the forecasts have real-world consequences that conflict with the US Federal Reserve's desire to ease policy too early. the analyst added, “If Powell opposes the market's idea of rapid rate cuts, as we expect, we may see EUR/USD fall on the announcement,”. Also, “Our expectations for the pair are lower at the psychological support levels of 1.07/1.05 over a horizon of 6/12 months.”
Overall, the euro was flat after the ECB kept interest rates unchanged and chose to issue a statement like that of the December meeting, the implication being that it was no closer to raising interest rates than it was a month ago. But Lagarde's press conference was more telling, she said a summer rate cut was possible while apparently not being willing to discount the April cut in full, weakening the euro globally.
Recently, in response to Lagarde's press conference, financial markets raised their belief levels for a rate cut in April to a probability of around 80% and cuts of 50 basis points will be priced in by June.
EUR/USD Technical Analysis and Forecast:
As we can see in the chart above, the 10815 level forms a horizontal line that has provided useful support for EUR/USD over recent months, while the 1.0850 level lies at the 200-day moving average. If this support level fails to hold, a relatively quick pullback to the December lows at 1.0723 support is possible. Technically, the successful defence or failure of the above-mentioned support area will depend on two major events this week. Moreover, the US Federal Reserve’s decision tomorrow, Wednesday, and the US Labor market report on Friday.
Obviously, if the Fed backs down on US interest rate cut expectations and US employment figures beat expectations, the US dollar could see another rise, finally breaking below the 1.0825 support. Ultimately, we believe it will take a good above-expectations read on Friday's data and strong support from US Federal Reserve Chairman Jerome Powell to achieve such a move and stimulate another decline in the euro against the dollar.
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