- For five consecutive trading sessions, the price of the euro currency pair against the US dollar EUR/USD has been moving amid a downward correction, with losses that extended to the support level of 1.0778 before settling around the level of 1.0790 at the time of writing the analysis.
- Also, that’s amid downward pressure ahead of the announcement of the important US job numbers affecting the future tightening of the bank’s policy of American Central Bank.
- Unfortunately, the gains of the EUR/USD pair last week evaporated, reaching the 1.1016 resistance level, its highest level in three months.
- Moreover, there are a growing expectation that the European Central Bank will be at the forefront of reducing interest rates.
On the bank policy front, A senior member of the European Central Bank's interest rate-setting committee would not rule out a cut in interest rates in the first half of 2024. Lately, Isabel Schnabel-a member of the ECB's Executive Board, said, “the latest inflation data from the euro zone was a very pleasant surprise." Adding, “any further increases in interest rates are “fairly unlikely.”
From financial markets, the end of the ECB's rate hike cycle is well known, and the more important question is when the first cuts will taper off. On this subject, Schnabel did not rule anything out. Schnabel was speaking to an ECB correspondent, to confirm that these were not imprudent comments but an official line of communication from the ECB. Meanwhile, Central bank pivot is financial language when a central bank reverses its policy position.
According to Forex currency market trading, euro exchange rates declined last week after money market quotes showed that investors had submitted their expectations regarding the timing of the first interest rate cut by the European Central Bank to the spring of 2024. Moreover, this was after all components of inflation in the euro zone declined further. What investors and the European Central Bank expected. Also, the shift in expectations was reflected in the widening of bond yield spreads in Favor of the pound, the dollar, and other major currencies.
On the other hand, Schnabel had an opportunity to respond to evolving expectations for interest rate cuts, but her cautious answers won't do anything to change the market's direction. Schnabel was added “Markets expect an early interest rate cut in the spring, but the European Central Bank has recommended fixed rates for several quarters,”. Asking, “How do you view this contradiction? She responded that markets are confident that inflation will fall quickly, with early pricing and very significant interest rate cuts next year.” She added: “Central banks are more cautious, and I think they should be more cautious.”. she ended “After more than two years of above-target inflation, we need to err on the side of caution.”
Furthermore, the ECB's official line is that key interest rates should remain sufficiently tight for as long as necessary to return inflation to its 2% target in a sustainable manner. Also, Schnabel says this should happen no later than 2025. According to forecasts by ECB staff, the current level of restrictions is sufficient to bring inflation back to target within this time frame. At the same time, she warned that the euro area experienced “very strong wage growth and weak or even low productivity, which led to a sharp increase in the growth of unit Labor costs.”
EUR/USD Analysis Today:
As we mentioned before, the EUR/USD price breaking the psychological support level of 1.0800 will be important for more bear control. Thus, the pair is preparing for stronger losses. Therefore, if the US job numbers come in stronger than expectations, EUR/USD will be on the verge of stronger bearish breaches, the closest of which is currently 1.0720. and 1.0650, respectively. Obviously, there are sufficient areas to push the technical indicators towards strong oversold levels. Moreover, if the opposite happens to the American numbers, the EUR/USD may find an opportunity to bounce higher. As we mentioned, the psychological resistance of 1.1000 will remain the key to bulls’ control. Shortly, by Considering that the recent signals from the European Central Bank may weaken the euro if an upward reversal occurs.
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