- Amid a pessimistic outlook, the heavy losses suffered by the euro price last week against the US dollar open the door to further declines in the coming days.
- According to the platforms of Forex currency trading companies, the price of the EUR/USD currency pair fell towards the 1.0618 support level, its lowest in five months, and stabilized around its losses at the beginning of Tuesday’s session.
- In general, the exchange rate of the euro against the US dollar weakened further after the support around 1.07 failed to hold.
Commenting on the performance of the EUR/USD exchange rate, Sean Osborne, Senior Forex Analyst at Scotiabank, says, "There is a deeper correction to the euro's rise in the fourth quarter towards 1.06, or lower than that, (76.4% correction support at 1.0611) evolving." Roberto Mialich, Forex Market Analysis Expert at UniCredit Bank in Milan, adds, "It is likely that the EUR/USD exchange rate will remain weak below the 1.07 level, as markets now anticipate earlier and deeper easing by the European Central Bank compared to the Federal Reserve this year."
Last week, the European Central Bank validated market expectations for a rate cut in June, but the heavy sell-off in EUR/USD has more to do with a raging US dollar. In fact, all dollar exchange rates saw significant movements following the massive repricing in interest rate expectations by the US Federal Reserve.
Markets had scrapped expectations of a US interest rate hike by the Federal Reserve in June and are now witnessing between one or two hikes by the Federal Reserve in 2024, while maintaining expectations for the Bank of England and other European central banks to cut interest rates more generously. At the same time, the strength of the US dollar is only bolstered by the creeping fear sweeping through stock markets that the rise in 2024 must succumb to the realities of the US higher interest rate regime for a longer period. This "risk avoidance" environment has proven to be a boon for "safe haven" currencies like the US dollar, ensuring that we are in a profitable position for both sides of the US dollar.
Analysts indicate that the total amount of easing expected for this year from the Federal Reserve is about 45 basis points, compared to the 150 basis points expected at the beginning of the year. Added, “On the other hand, the ECB’s interest rate cut in June was almost fully priced in,” they reported. “Markets are therefore confident that the ECB is likely to start an easing cycle before the Fed, and that it will likely be heavier, with interest rates at around 80 basis points and cuts this year now being baked into euro zone forward interest rates.”
They added, “Given this interest rate cut picture, the EUR/USD rate broke below the 1.07 support and is expected to remain weak for the time being.” Even a recovery back towards 1.08 resistance looks difficult at this point, unless investors return to pricing in more intense easing by the Fed than by the ECB, a prospect that seems unlikely now.”
In the same regard, Alex Kuptsikevich, chief market analyst at FXPro, is looking forward to the next possible levels that the euro could face against the US dollar, as he sees 1.05 on the way. The analyst said, “The pair is likely to test the strength of this support again very soon, and the accumulated difference in the policy of the Federal Reserve and the European Central Bank enhances the chances that the pair will not stop there this time.” Added, “If the EUR/USD price actually falls below 1.05 in April, the pair may fall to the next stop, finding support only near 0.95,” he warns.
Economic Calendar Data
There is not much in the calendars of the United States and the Eurozone that raises concerns for the Forex markets. However, we will monitor the US retail sales release at the beginning of the week's trading. Any strong reading here will only confirm that strong consumer demand is driving the continued rise in inflation. The US dollar's recent advance could be extended if data exceeds the 0.3% m/m consensus forecast.
EUR/USD Technical analysis and forecast:
According to the performance on the daily chart attached, the price of the euro against the US dollar EUR/USD is still bearish. Its recent losses have moved some technical indicators towards strong saturation levels for selling. However, it must be considered that the continuing factors of the US dollar’s gains amid clear disappointment with the European Central Bank’s imminent start to reduce interest rates. Additionally, the stronger numbers for the US economy, will enable the bears to move the currency pair towards stronger support levels, the closest of which are currently 1.0590, 1.0500, and 1.0470 respectively. Until now, the euro-dollar's gains will remain limited and vulnerable to a rapid collapse.
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