- The EUR/USD pair has been under pressure since the start of this week, falling to its lowest level in a month at 1.0844.
- Currently, the pair is trading around 1.0880 in early Thursday trading.
- Generally, the US dollar has been strong against other major currencies as expectations for an imminent US rate cut have eased.
- In contrast, the euro has lacked momentum as recent comments from European Central Bank (ECB) officials have been mixed about the future of ECB rate cuts.
Meanwhile, the stronger-than-expected US retail sales data could further support the dollar. Thus, higher consumer spending could lead to a preference for the dollar amid expectations that the Federal Reserve can keep borrowing costs elevated for longer. Also, the euro is in a wait-and-see mode as traders may be eager to place bets ahead of next week's ECB decision and preliminary readings of the purchasing managers' index (PMI). Moreover, strong data could bolster views that the ECB may maintain its policy for longer, translating into gains for the shared currency. On the other hand, expectations for more easing could mean a decline for the euro against the US dollar.
On the front of global central bank policy in the coming months, both the ECB and the Bank of England have stuck to a hawkish message even as the Fed has shifted to a more dovish stance. They will see how strong the market reaction is to the pivot and how quickly yields have fallen. This could allow inflation to creep back up. As a result, the Fed has been trying to walk back its hawkish rhetoric since its November meeting and the market has largely ignored it – a rate cut in March is now priced in almost fully, as well as cuts of around 160 basis points.
Therefore, the ECB and the BoE will try to appear as hawkish as possible. And since there is a clear lag in the process of bringing down inflation in the EU and the UK, it makes sense for policy to lag as well. No one is expecting a cut in March from either bank, although the market has factored in a significant number of cuts later in 2024. Therefore, the ECB reiterated a hawkish stance this week, and there appears to be a concerted effort to deter the market's cautious expectations.
EUR/USD Technical analysis and forecast:
The EUR/USD exchange rate fell through support at the lower uptrend line, indicating that a downward trend is in order. Technically, the price reaches the bottom at the 1.0863 area and may be in a retest phase. Also, the Fibonacci retracement tool shows additional levels that sellers may look to enter. Moreover, the 38.2% Fibonacci level is located at 1.0916, then the 50% level is at 1.0932. The higher correction may reach the 61.8% Fibonacci level at 1.0948 near the minor psychological mark of 1.0950, the previous trend line and the dynamic inflection points at the moving averages.
Regarding the moving averages, the 100 SMA crosses below the 200 SMA to confirm bearish dominance. Therefore, if any of the Fibonacci levels hold as resistance, the EUR/USD price may decline to its current levels or lower. Moreover, the stochastic oscillator continues to move upward, indicating that buying pressure is present, and the correction may continue until overbought levels are reached. Similarly, the Relative Strength Index (RSI) has started to rise from the oversold zone, signalling the presence of bullish momentum.
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