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EUR/USD Analysis: Eyes on ECB

The general trend of the EUR/USD pair will remain bearish until the reaction to the announcement of US job numbers by the end of the year. 

  • Ahead of the release of eurozone inflation figures and then new comments from US Federal Reserve Governor Jerome Powell, the EUR/USD pair continued its strong downward trend.
  • Losses extended to the 1.0724 support level, its lowest in a month and a half, before quickly rebounding to 1.0770 in early trading on Wednesday.
  • Clearly, it benefited from the decline in the number of US job openings.

EUR/USD Analysis Today 03/04: Eyes on ECB (graph)

The losses in the EUR/USD came as investors expected more easing from the European Central Bank than the US Federal Reserve this year. Overall, financial markets have slightly increased their expectations for future rate cuts by the ECB, pricing in 93 basis points for 2024. This is following German regional consumer price index data pointing to a significant slowdown in inflationary pressures across the country in March.

In addition, headline inflation in France reached its lowest level in more than two years, while rates in Italy and Spain saw slight increases. In the United States, traders tempered their expectations for a cut in US interest rates this year after data revealed that the US manufacturing sector unexpectedly rebounded to growth in March, recording the first growth of its kind in 18 months.

EUR/USD Forecast: Heading for a fourth weekly loss.

At the beginning of the new week's trading, the US dollar rose amid a strong market reaction to stronger-than-expected US economic data, which put the possibility of a rate cut by the Federal Reserve in June on ice. According to forex trading platforms, the euro to dollar exchange rate dropped to 1.0725, its lowest level since February, after the US Manufacturing Purchasing Managers' Index (PMI) rose to 50.3 in March from 47.8 in February, comfortably surpassing expectations of 48.4. The prices stated in the report increased to 55.8, exceeding estimates of 52.6, indicating that inflationary pressures facing US companies are rising again.

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    After the data was released, market implied expectations for a June rate cut by the Fed fell, boosting US yields and the US dollar. At the same time, technical studies confirm that the downward pressure on the euro against the dollar is increasing, as the pair has now fallen for three consecutive weeks.

    Obviously, there is a good chance that this will be another down week, as we are only on Tuesday and have already recorded a 0.60% decline. Commenting on the performance of the currency pair, Boris Kvasovic, an expert at Convera, says: "After just one trading day, the US dollar has risen this week more than it did during the entire previous day, highlighting how surprised markets were by the PMI beat."

    Looking at the economic calendar this week, the ISM services PMI (Wednesday) and job openings and the US non-farm payrolls report (Friday) will be closely watched. Also, comments from a number of US Federal Reserve officials. Overall, the EUR/USD currency pair is on track for a fourth straight weekly decline if the data continues to be positive for the US dollar. This is especially true as upcoming European inflation data is expected to put pressure on the ECB to cut rates sooner than expected.

    In the eurozone, the release of inflation figures mid-week will be the highlight, with the single currency likely to come under further pressure if the final reading comes in below the market's main expectation of 2.6% year-on-year. According to analysts at Credit Agricole Bank, "We expect EUR/USD to remain in a downtrend in the coming months and reach the psychological support of 1.05 in Q4 2024.

    Meanwhile, the main driver of our bearish view on EUR/USD is the widening policy divergence between the increasingly dovish ECB and the more hawkish US Federal Reserve.

    Overall, Credit Agricole believes that the ECB's April monetary policy meeting next week could add to downside risks for the pair, especially if President Christine Lagarde "pre-commits" to a June rate cut while the ECB looks to update guidance signals with more cuts beyond that. The euro may be vulnerable to any potential negative data surprises that could encourage investors to raise their expectations for a near-term ECB rate cut.

    EUR/USD Technical Analysis and forecast:

    Despite the rebound attempts, the general trend of the EUR/USD pair is still bearish. Stability below the psychological support of 1.0800 will continue to support the bears in more control. As we mentioned before, the general trend of the EUR/USD pair will remain bearish until the reaction to the announcement of US job numbers by the end of the year. The coming week and the increase in strong momentum for the dollar may give bears the opportunity to move towards the next support levels of 1.0720 and 1.0645, respectively, from which the technical indicators will move towards strong oversold levels. On the other hand, according to the performance on the daily chart, the psychological resistance of 1.1000 will remain the most important for causing a shift in the trend to the upside.

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    Mahmoud Abdallah
    About Mahmoud Abdallah
    Mahmoud has been working fulltime in the Foreign Exchange markets for 12 years. Offers his analysis, articles and recommendations at the most renewed Arabic websites specialized in the global financial markets, and his experience gained a lot of interest among Arab traders. Works on providing technical analysis, market news, free signals and more with follow up for at least 12 hours a day, and aims to simplify forex trading and the concept of trading for his audience.

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