- Since the start of trading this week, the EUR/USD currency pair has been stable below the psychological support level of 1.0800, with losses extending to the support level of 1.0722, the lowest level for the currency pair in nearly two months, and is currently stabilizing around 1.0755 at the time of writing the analysis.
- Moreover, the US dollar remains the strongest due to the hawkish signals from the US central bank and better economic data results led by US jobs figures.
Will the Price of the Euro Rise in the Coming Days?
The euro suffered its worst January performance since 2015 after falling 2.2% against the US dollar, but further losses are likely, according to leading investment banks. In this regard, Valentin Marinov, Forex analyst at Credit Agricole Bank, says: “The euro is supposed to emerge as one of the largest underperforming currencies in the G10 in 2024.”
Meanwhile, this view contradicts the consensus among analysts at the beginning of 2024 that expected the dollar to decline throughout the year, allowing for a steady recovery of the euro. However, the dollar was the best-performing currency for 2024 ahead of last week's non-farm payrolls report, missing expectations and pushing the euro down 0.75%. The losses extended into Monday after a weekend interview with US Federal Reserve Chairman Jerome Powell, in which he said that the Fed would maintain a cautious approach to lowering interest rates.
On Monday, the ISM survey showed a strong recovery in the employment situation in US companies, which strengthened the dollar further. So, the result is that the US Federal Reserve will almost certainly leave interest rates unchanged in March, disappointing a market that was fully priced in for a rate cut just two weeks ago. Economists at Rabobank add that the US Federal Reserve is unlikely to start cutting interest rates before June, and that the dollar will begin to moderate from that point on. As a result, analysts expect the US dollar to strengthen only in the second half of the year when the Fed's interest rate cutting cycle begins.
Regarding the US interest rate cut in March, Powell said: “I think it is unlikely that this committee will reach this level of confidence in time for the March meeting, which will be held seven weeks later.” For her part, Jane Foley, senior currency analyst at Rabobank, says: “The TV interview message was recorded before the US Labor report for January, which was released on Friday. “The implication is that he would likely have doubled down on his message had he been privy to the data.” Also, Rabobank holds the one-month EUR/USD forecast at 1.07 and the three-month target at 1.05.
Credit Agricole adds that its bearish forecast for EUR/USD is not just a function of Fed policy, but reflects an expectation that the ECB could match and even exceed the number of Fed rate cuts it expects in 2024. Accordingly, this may turn the euro into an attractive financing currency.
In addition, yields on bonds issued by peripheral eurozone countries are expected to grow much faster than those in Germany. This widening of yield spreads is expected to accelerate from here as the ECB's quantitative tightening program accelerates and affects the attractiveness of the euro. Moreover, credit Agricole expects markets to become more risk-averse in the second half of the year thanks to a more uncertain economic growth outlook and political uncertainty in the United States.
Bringing these factors together and applying them to a model leads Credit Agricole to confirm the forecast, “the euro should emerge as one of the biggest underperforming currencies in the G10 in 2024.” Also, the bank expects the EUR/USD exchange rate to reach 1.07 by the middle of the year and 1.05 by the end of the year.
EUR/USD Technical Analysis and Forecast:
The bearish stability of the EUR/USD currency pair continues, and the move below the psychological support level of 1.0800 confirms the bears’ control and warns of an upcoming strong downward move. According to the performance on the daily chart above, the technical indicators will move towards strong saturation levels for selling in the event of a move towards the support levels of 1.0710 and 1.0645 on Consecutive. On the other hand, over the same period, there will be no reversal of the trend without moving towards the psychological resistance level of 1.1000 again.
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