EUR/USD Analysis: Euro Price Looks for Stimulus

• The bears' control over the direction of the EUR/USD pair has strengthened, with losses extending to the support level of 1.0812.
• Trading for this important week started stable around the 1.0845 level.
• Clearly, EUR/USD will be on an important and fateful date this week, as the US Federal Reserve will announce an update to its monetary policy, and then US employment figures will be announced.
• Thus, these data and events will have a strong impact on the performance of the most popular currency pair in the forex market. 

Before that, the price of the euro was greatly affected by hints about an early cut in interest rates by the European Central Bank. In this regard, François Villeroy de Galhau, policymaker at the European Central Bank, threw down the challenge to his colleagues in the Board of Governors, raising the possibility of easing monetary policy at any of their upcoming meetings. Speaking in an interview with La Tribune Dimanche, the French central bank governor said there would be interest rate cuts this year. He added, “With regard to the specific date, no one is excluded, and everything will be open in our upcoming meetings.” 

Obviously, the comments highlight emerging divisions between officials just days after Bank Governor Christine Lagarde said there was consensus at a board meeting last week that “it is too early to discuss interest rate cuts.” 

Moreover, it is a challenge for policymakers, including Klaas Knot of the Netherlands, who insist that the ECB will need to see a shift in wages before it can start cutting borrowing costs, comments that point to June as the earliest opportunity for any action. Likewise, Nott - who reiterated the importance of these numbers in a television interview on Sunday - is not the only one demanding clarity on the salary increase. Others, including chief economist Philip Lane, Estonia's Madis Müller and Slovenia's Bostjan Vasil, have stressed its importance. Lane said earlier this month that “the most complete data set is in the Eurostat national accounts data” and would not be available until the end of April – arriving too late for the ECB meeting near the beginning of that month. However, he modified those comments by saying that there is “other data that we will look at every week.” 

Meanwhile, in the patient camp are Austrian hawk Robert Holzmann - who has said there may be no rate cuts at all this year - and Latvia's Martins Kazaks and Boris Vujicic, who both warned against going too early when they spoke with Bloomberg TV. Friday. In contrast, Villeroy said waiting too long could be a problem. “We will have to avoid two risks that have become balanced: reducing too early and not achieving the target, but also acting too late and slowing down activity excessively,” he said. 

The Frenchman is not alone, though. Portuguese Mario Centeno said that this step could take place before May, while Gediminas Simkus said on Friday that he was open to the April move and would look at the economic data that arrives in the meantime. Also, Villeroy has investors on his side. Financial markets now point to a near 90% chance of a quarter-point rate cut by April, with interest rates expected to be cut by 146 basis points throughout the year. 

The six policymakers who will speak this week are likely to add to the dissonance. Vice President Luis de Guindos kicks things off on Monday, Bundesbank President Joachim Nagel, Lane, Vujciech and Fassel are scheduled to start things on Tuesday, and Centeno on Thursday, Friday and Saturday. Also, Lane will speak again on Thursday as well, less than two hours after the release of data likely to show euro zone inflation slowed to 2.7% in January. 

On the economic side, for the Eurozone, economists expect the result to be a second quarterly contraction of 0.1%, which meets the typical definition of a recession. Also, inflation reports are due from across the region, culminating in the outcome for the currency area next Thursday. The reading is expected to reach 2.7% there - still significantly above the European Central Bank's target - while the so-called core measure that excludes energy and such volatile elements may still be higher than that. 

EUR/USD Technical Analysis and Forecast: 

So far, the general trend of the EUR/USD currency pair is still bearish, and the success of the bears in breaching the psychological support 1.0800 will confirm the strength of the bears’ control. According to the performance on the daily chart above, the RSI indicator will move towards strong saturation levels for selling if the EUR/USD price moves towards the support levels 1.0745. and 1.0680, respectively. On the other hand, over the same period, there will be no first break of the current bearish channel without moving above the psychological resistance 1.1000 again. Finally, we expect a quiet trading session today, with the economic calendar devoid of important releases.