- At the start of this crucial week's trading, the EUR/USD currency pair enjoys relatively good support as the European Central Bank's decision approaches this coming Thursday, along with the pivotal US job report on Friday.
- Prior to these economic data releases and significant events, the EUR/USD rose to the resistance level of 1.0867 and stabilized around it at the time of writing.
Generally, the euro has recovered during February, and charts indicate that any declines continue to find good support around the psychological support level of 1.08 in the near term. According to forex trading platforms, the EUR/USD price rebounded from the 1.08 area on Friday after stronger-than-expected inflation figures in the Eurozone. Given the recent decrease in volatility in the global forex market in recent weeks, it would be wise to indicate that the 1.08 level is likely to hold. The euro's recovery in February has dissipated, and with short-term momentum indicators fading, this suggests that the upside for the EUR/USD will be contained below 1.0890, as markets await new clues about central bank policies. In this regard, the European Central Bank meeting for March on Thursday will be the main event for the euro this week.
Commenting on events, analysts at Credit Agricole Bank say, "Currency investors will focus particularly on the bank's new growth and inflation forecasts as they can provide important evidence about the timing and pace of future interest rate cuts. Also, it is important for any indications from ECB President Christine Lagarde that any further tightening through ECB policy and public budget policies may require more substantial interest rate cuts."
Therefore, Credit Agricole Bank maintains a long-term bearish outlook for the euro from current levels.
According to recent trading, the euro rose on Friday after the Eurozone inflation data came in stronger than expected, suggesting to the markets that the European Central Bank will resist any talk of an imminent interest rate cut on Thursday. The data revealed that inflation pressures in the Eurozone services sector remain sharp, prompting the European Central Bank to say it wants to see more flexible wage dynamics (which could affect service inflation) before cutting interest rates.
According to HSBC Bank analysts, investors will closely monitor any future guidance regarding the timing of the first interest rate cut. Therefore, we do not believe that the ECB will be confident enough that the euro area has come far enough in the process of reducing inflation to even discuss interest rate cuts.” They added, “Although headline inflation has fallen, core inflation remains higher than the ECB would like, and real wages remain high. We expect the first interest rate cut to take place in June.”
Overall, the euro's rise during the past week indicates the relatively favorable market position for the relatively "hawkish" European Central Bank, meaning that the upside risks for the euro during the day are limited. This means that the surprise factor will be if the European Central Bank overlooks expectations of a mid-year rate cut, arguing that it believes inflation is still on track to reach 2.0% sustainably. Regarding the euro's outlook in the coming days, this is likely to weaken the euro and push the EUR/USD currency pair below 1.08, but we expect the movements to fade before the US job report on Friday, which is the main event for this week.
EUR/USD Technical analysis and forecast:
Despite the rebound at the beginning of the week, the broader general trend of the EUR/USD currency pair is still bearish. Technically, moving toward the psychological support level of 1.0800 supports the bears’ control and portends a stronger downward move, especially if the European Central Bank abandons its tightening tone this week. A move towards the next psychological support level of 1.0580 cannot be ruled out. On the contrary, testing the psychological resistance level of 1.1000 may present an opportunity, but we still prefer selling the EUR/USD from every upward level.
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