At the end of last week's trading, the price of the EUR/USD tried to compensate for some of its sharp losses, which pushed it toward the support level of 1.0912, where it recovered to the resistance level of 1.1042 after the announcement of the US job numbers, amid mixed results that slightly weakened the future of raising the US interest rate.
The future of interest rate hikes from the European Central Bank and the Federal Reserve Bank will remain important for predicting the performance of the euro/dollar in the coming period. This week, there will be importance for the announcement of US inflation figures, which will have a strong reaction on the future of raising interest rates from the Federal Reserve Bank.
Commerzbank maintains a bullish outlook for the EUR/USD until the end of the year. As expected, the euro's recent pullback from highs near $1.12 comes as no surprise to analysts at Commerzbank who believe further softness in the near term is warranted, but the bank says it is committed to forecasts showing a strong recovery by the time the New Year rolls around.
A fresh research note from the Deutsche Bank indicates that a pullback below support 1.10 in the EURUSD exchange rate is justified by setting the fundamental scene and further losses can be expected in light of the ECB's dynamics. In this regard, Ulrich Leuchtmann, Head of Forex and Commodities Research at Commerzbank, said that: “The reasons that led to prices rising above the 1.12 resistance last month were weak.”
The analyst added that “In the coming weeks, strong US data related to the Eurozone is likely to indicate that the market is pricing in a higher chance of another Fed rate hike”
A string of better-than-consensus economic data points to stubborn resilience in the US economy, which has raised confidence among analysts that the Fed can cut inflation while avoiding a recession. These expectations raised the odds of another rate hike in September, helping dollar exchange rates in the process. But the shop says there is little momentum left for the currency markets in the hike story: both the ECB and the Fed are close to a final rate and changes by a few basis points here or there is no game changer.
What is important, however, is what happens next: Who cuts interest rates first and by how much?
In this regard, economists at Commerzbank believe that the period of economic weakness in the euro area is coming to an end at the end of the year. This reduces the chances of the European Central Bank cutting interest rates, which means that "risks to the euro should be seen as low". At the same time, American economists at Commerzbank expect a significant economic slowdown in the United States from then on, to which the Fed will respond by cutting interest rates. Accordingly, the analyst said that “From a market perspective, the ECB is likely to be seen as a more hawkish central bank. This should translate into the strength of the euro against the US dollar in the forex market.”
Overall, Commerzbank expects the euro against the dollar to approach current levels through September before moving to 1.14 by the end of the year and 1.15 by the end of the first quarter of 2024. However, levels around 1.15 are likely to peak, and a steady decline is expected during the second half. From next year as the US economy recovers from the expected recession.
EUR/USD Technical Outlook
- According to the performance on the daily chart below, the bulls are trying to push the EUR/USD above the psychological resistance at 1.1000 to avoid a further bearish collapse.
- So far, the general trend is still bearish, and the support of 1.0880 will remain the culmination of the bears' domination of the trend.
- From it and below it, the technical indicators are moving towards strong oversold levels.
On the other hand, over the same time period, the movement of the EUR/USD above the resistance at 1.1120 will be important to start changing the direction. I expect calm movements for the currency pair today. The statements of US Federal Reserve officials will be interacted with, especially after the announcement of the recent important US job numbers.
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