- Last Thursday's session was the best performing session for the EUR/USD currency pair, as bulls managed to move towards the 1.0888 resistance level, the highest in three weeks, but closed the week stable around the 1.0818 level.
- According to the recent performance, the recently formed ascending channel still lacks momentum, and a real shift in the overall trend to bullish will not occur without a return to the psychological resistance level of 1.1000.
Will the Euro Decline in the Coming Days?
The euro (EUR) price rose after the French Purchasing Managers' Index (PMI) data for business confidence exceeded expectations. According to trading, the euro exchange rate against the US dollar jumped to its highest levels in 20 days, slightly below the 1.0890 resistance. Subsequent data has been less convincing, with particular concern about the German manufacturing sector. Evidence of strong inflation in the data also dampened optimism surrounding the possibility of early cuts in global interest rates. In general, risk conditions in general will also be important for the major currencies, as the US dollar tends to decline if sentiment remains strong, while the US dollar will recover if stock markets are under pressure.
Regarding what is expected for the euro/dollar in the coming days, ING Bank expects the EUR/USD pair to rise in the short term. Also, the bank believes that the pair could test the 1.0865/1.0900 area, but the status of any higher levels has not yet been determined.
For its part, Credit Agricole remains positive regarding future expectations. He stated, “We believe that as long as the Purchasing Managers’ Index (PMI) data supports the market’s view that the global outlook is improving and the comments of the US Federal Reserve and the Bank of England maintain investors’ interest rate cut expectations, this may keep risk sentiment supported in enhancing risks.” High returns and high risk. “Linked currencies.”
According to the results of the Economic Calendar data, the Eurozone manufacturing PMI fell to its lowest level in two months at a reading of 46.1 for the preliminary reading for February from a reading of 46.6 previously and below expectations at 47.0. However, the services sector index rebounded to a 7-month high of 50.0 from 48.4 previously which was higher than expectations at 48.8 and marked the first time the sector has not contracted since August 2023.
On another level, Business confidence improved for the fifth month in a row, reaching a 10-month high. For Hamburg Commercial Bank analysts, “There is a glimmer of hope as the euro zone approaches recovery. Especially, this is noticeable in the service sector. The latest PMI reading gives hope for a recovery in the Eurozone, which is why we are sticking with our annual HCOB forecast of 0.8% for 2024.
Input prices rose strongly, with the increase in output prices also being the strongest since May 2023. Except for the strong pressures over the past two years, the increase in prices in the services sector was the highest since 2000. Therefore, the European Central Bank is likely to closely monitor price data, and the stronger rate of increase will be a significant obstacle to an early cut in interest rates. Analysts added, "The latest Purchasing Managers' Index (PMI) figures from HCOB are likely to disappoint the European Central Bank. This is entirely due to the labour-intensive services sector, which is still suffering from wage increases. Therefore, our expectation remains that the European Central Bank will cut interest rates for the first time in June."
In contrast, the minutes of the Federal Reserve's end-January meeting were released last Wednesday. The committee members were keen to stress that patience is required and that it would be dangerous to reduce US interest rates too quickly. In this regard, MUFG commented, “The general tone of the minutes seems to be better aligned with the current interest rates in the US market, which expects the first interest rate cut to be implemented in June.”
According to ING Bank, “Consistent with Fed Chairman Jerome Powell’s press conference at the time, the word ‘confidence’ was sprinkled liberally throughout the minutes, suggesting that the Fed needed to ensure that inflationary risks were extinguished before cutting interest rates to “Kind of a neutral level – maybe close to 3%.” Added, “Our game plan here sees the US dollar remaining supported over the next two weeks and then retreating in March based on what should be a weaker jobs report and a weaker CPI number for February,” the bank added. In early March, we could also hear about some new stimulus in China which will be a boon for the currencies of the rest of the world.
EUR/USD Technical Analysis and Forecast:
Today, we expect a calm trading session for the performance of the price of the EUR/USD pair, considering the cautious waiting mode for financial markets and investors until the US Federal Reserve Bank’s preferred US inflation reading is announced later this week, in addition to the US economic growth reading and inflation readings for the region. euro. In general, the price of the euro against the US dollar EUR/USD will not change its general direction to the upside without moving towards the psychological resistance level of 1.1000, which is the most important on the daily chart above. On the other hand, over the same period, the return to the 1.0750 support area will be important for the bears to move back towards lower levels in the currency pair.
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