- Ahead of a batch of important US economic data this week, the price of the EUR/USD currency pair is still under strong downward pressure, because of which it moved towards the 1.0695 support level, its lowest in two months, and is stable around the 1.0730 level at the time of writing the analysis.
- Recently, the price of the US dollar is stronger against the rest of the other global currencies in light of the distinguished performance of the US economy despite the tightening policy of the US Central Bank.
- Moreover, expectations have changed a lot after the results of the recent US economic data regarding the future of the economic recession.
Will the Price of the Euro Bullish Change in the Coming Days?
The EUR/USD exchange rate is on track to reach the 1.04 support level, according to analysis following the US dollar's jump in the wake of January's US inflation data. The price of the euro fell against the dollar after inflation in the United States of America rose by 3.1% on an annual basis in January, exceeding expectations of 2.9%. More importantly, analysts noted that the full range of goods and services in the inflation basket showed that deflationary pressures in the US were fading. In this regard, analysts at Danske Bank say: “It is clearly not good news for the Federal Reserve and the market’s pricing in a cut in US interest rates in March, let alone a cut before the summer, which took a big hit.”
Ultimitlay, the US inflation reading comes on the heels of a strong jobs report earlier in February and outright resistance from Federal Reserve Chairman Jerome Powell against the expectation of any imminent cut. Analysts added, “Interest rates have been priced/cut further outside the curve, with cuts before the summer looking increasingly unlikely.”
Also, Analysts point out that there are now approximately 90 basis points of interest rate cuts priced in by the US Federal Reserve over the course of the year, in sharp contrast to the approximate 150 basis points of cuts priced in at the beginning of January. Obviously, this downward shift in price expectations is strengthening the dollar and pushing the EUR/USD exchange rate towards Danske Bank's target of 1.05.
As explained, the lender and the Scandinavian investment bank disagree with the consensus that sees a steady rise in the euro/dollar rate through 2024, saying the valuation represents a headwind and thus acts as a source of gravity for the exchange rate. Analysis conducted by Ulrich Luchtmann, Head of Forex and Commodities Research at Commerzbank, reveals that the strength of the US dollar is due to the fact that the long-term Fed rate expectations have also begun to move. He explains, “Markets are no longer anticipating faster rate cuts than the FOMC itself expected in 'points' in December. Added, “For the first time, the market is accepting the Fed’s story: that interest rate cuts will be gradual.”
Meanwhile, the economists at Commerzbank warn that the January inflation report should be treated with caution due to statistical rebalancing that could create some noise. “The numbers may not do much to change the underlying decline in inflationary pressures,” says Christoph Balz, chief economist at Commerzbank. Added, “January numbers in particular have often been out of line in the past.” Also, it indicates that we got another reading on PCE inflation as well as another major inflation report covering the February period before the Fed meets again. Ended, “Therefore, it is my duty to point out that the current strength of the US dollar must also be treated with caution.”
EUR/USD Technical Analysis and Forecast:
According to the performance on the daily time frame chart, the general trend of the EUR/USD currency pair is still bearish, and breaking the 1.0700 support confirms the bears’ control, considering that the results of today’s economic calendar data regarding the American data are led by retail sales numbers and the number of weekly unemployment claims. If it is positive, bears may find the opportunity to move towards deeper support levels closest to 1.0670 and 1.0580, respectively, which are sufficient to push the technical indicators towards strong oversold saturation levels. On the other hand, over the same period, there will be no initial break of the downward channel for the EUR/USD pair without moving above the resistance 1.0885.
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