- As April trading begins, the EUR/USD currency pair remains below the psychological support level of 1.0800, with losses extending to 1.0767, their lowest level in five weeks.
- The performance comes after the first-quarter losses widened to around 2.3%, amid speculation that the European Central Bank could cut interest rates soon.
- Many traders expect borrowing costs to fall, with June being the most likely timeframe, although April is also a possibility.
Recently, ECB officials have expressed dovish views, with ECB Governing Council member Villeroy de Galhau saying it is time to "insure against growth risks" by starting to cut interest rates, and ECB member Fabio Panetta noting that the conditions for starting to ease monetary policy are beginning to be met. Also, Pierre Cipolletta pointed to growing confidence within the ECB that inflation trends will return to the 2% target by mid-2025, especially as wage growth moderates, reinforcing the case for lower interest rates.
Expected number of rate cuts by the ECB: ECB board member Yannis Stournaras said that a total of four rate cuts are possible in 2024, with a 100-basis point cut by the end of the year. "If inflation evolves in line with our March projections, and if this trend continues until the end of the year, I think we will have this year cuts in key interest rates from the ECB," Stournaras said in an interview with Proto Thema Sunday. He also said "Personally, I think four rate cuts this year, by 25 basis points each, are possible."
However, Stournaras' views, which are on the dovish side of the ECB policy spectrum, have not yet been fully echoed by other members of the Governing Council. "This is not yet a unified view," added Stournaras, who heads the Greek central bank. "Some colleagues are more cautious and believe that rate cuts should be more gradual."
Recent inflation data from France and Italy has supported the case for the ECB to start cutting rates sooner rather than later. With the consumer price index falling closer to the ECB's target of 2%, most policymakers have endorsed ECB President Christine Lagarde's signal that the first-rate cut will come in June.
According to the results of the economic calendar, after the consumer price reports released last week from France, Italy, and Spain, and following the region-wide holiday on Monday, more puzzles will emerge revealing the strength of the pressures facing the euro zone. German inflation is expected to show further weakness towards the 2% target on Tuesday. The ECB will release its consumer expectations survey on the same day.
Moreover, the euro zone inflation figure will be released on Wednesday. The results, which economists expect at 2.5% - 3% for the core measure excluding volatile energy and food - could push officials towards cutting rates in the coming months as they gauge how their policy is slowing growth. Governing Council members have until the end of Wednesday to exchange views before the blackout period begins ahead of their decision on April 11. Further clues to their thinking could emerge the following day when the minutes of their last meeting are released.
EUR/USD Technical Analysis and forecast:
We expect the bearish performance of the price of the currency pair EUR/USD to remain below the psychological support level of 1.0800 until the markets and investors react to the announcement of the US jobs numbers at the end of the week. This will have a strong and direct reaction to the future of the US interest rate hike. Currently, the closest support levels for the general downward trend are 1.0730, 1.0650, and 1.0580, respectively. The technical indicators will move towards strong oversold saturation levels. On the other hand, according to the performance on the daily chart, the psychological resistance of 1.1000 will remain the most important to change the general outlook to bullish.
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