- During yesterday's session, the EUR/USD pair tried to rebound to stop the pace of its losses, which extended to the support level of 1.0795, its lowest level in a month and a half.
- However, the rebound gains did not exceed the level of 1.0857, as the US dollar remained the stronger currency ahead of the US Federal Reserve's announcement later today.
- Thus, the focus will be on the release of US employment figures on Friday.
- Technically, The EUR/USD pair is still moving within a downward channel since it failed to move towards the psychological resistance of 1.1000.
Ahead of today's event, the economy of the euro area avoided a recession in the second half of 2024, as Eurostat reported a GDP reading of 0% on a quarterly basis for the fourth quarter of the year. Generally, avoiding recession provides some psychological relief, but the data does not change the fact that this economy is still struggling.
According to Eurostat, southern European countries led the way in terms of economic growth, with Spain, Portugal and Italy seeing growth of 0.6, 0.8 and 0.2%, respectively. At the same time, Germany continues to drive economic weakness in Europe, with a contraction of 0.3% in the fourth quarter. According to analysts, growth discrepancies are likely to widen further in the summer. The pattern of previous years is likely to be repeated. Southern European countries will benefit from another good tourist season. Holidays remain a top priority for many consumers this year. Savings are made on the purchase of food, furniture and electronic goods, but not on holidays (check out our Holiday Season Trading Schedule article). The beneficiaries of this behavior are the countries of southern Europe, which enjoy a relatively high share of tourism in gross domestic product.
At the same time, the German economy is expected to continue to lag as long as the global economy remains weak due to the high proportion of exports. Therefore, it is certain that market bets on an earlier interest rate cut by the European Central Bank may have risen further if the data is lower than expectations, ensuring that this data supports the euro. According to analysts, “These numbers do not indicate any urgent need for action by the European Central Bank. European policymakers will likely feel right and hold off on cutting interest rates for now. Over and above that, monetary easing is likely to be first on the agenda. When inflation rates approach the ECB's target values, this is likely to be the case by mid-year.
Moreover, Jane Foley, senior FX analyst at Rabobank, says the relative weakness of the euro zone economy is still likely to support market speculation regarding a rate cut in the spring. Obviously, this suggests there is scope for euro weakness in the near term.
According to Forex market trading, euro exchange rates declined at the beginning of the new week amid the continued rise in bets that the European Central Bank will lower interest rates as soon as April. Recently, Slovak Central Bank President Peter Casimir and Board Member Mario Centeno directly addressed the possibility of an April cut on Monday, “The next step will be a reduction, and it is within our reach,”. Casimir said, “I am confident that the exact timing, whether in April or June, is secondary to the impact of the decision.”
EUR/USD Technical Analysis and Forecast:
The recent decline pushed the EUR/USD pair below the 100 hourly moving average. As a result, it seems that the currency pair still has some room to move before reaching the overbought levels of the RSI on the 14-hour frame. In the near term, and according to the performance on the hourly chart, it appears that the EUR/USD pair is trading within an ascending channel formation. Technically, it appears that the RSI on the 14-hour frame still has more room to run before reaching overbought levels. Therefore, the bulls - will look to extend the current rally towards 1.0866 or higher to the 1.0886 resistance. On the other hand, the bears - the bears - will be looking to pounce on pullbacks at around 1.0817 or lower at the 1.0795 support.
In the long term, and according to the performance on the daily chart, it appears that the EUR/USD currency pair is trading within a sharp bearish channel. Also, the 14-day RSI appears to be supporting the downside as it approaches oversold levels. Therefore, the bears will look to extend the current series of declines towards 1.0757 or lower to the 1.0673 support. On the other hand, the bulls will target long-term profits at around 1.0926 or higher at the 1.1004 resistance.
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