- At the start of trading this important week, the euro/dollar exchange rate (EUR/USD) stabilized at a level slightly below 1.09, with losses extending to the support level of 1.0861.
- Overall, the euro-dollar will find it difficult to make progress due to the pre-Federal Reserve adjustment.
- The Fed's key focus will be on the latest interest rate expectations from committee members.
In December, the median expectation was for three US rate cuts in 2024. There will be speculation that there will be a change in expectations to cut interest rates twice this year, which will tend to support the US dollar in this meeting.
In general, currencies have been mostly range bound in recent weeks and months, as monetary policy tightening cycles have ended in most countries, and markets await the next major drivers. The US dollar is an example of this, as it achieved lower highs and higher lows within the specified range from July to October last year. One potential spark for the next major move will likely relate to when US interest rates will be cut for the first time and how quickly and deeply, they will be cut. Currently, markets are anticipating about 75 basis points of easing from the Fed, starting in June. Clearly, this contrasts with the European Central Bank which is expected to cut by 100 basis points this year, while the outlook for the Bank of England is a bit more stringent as it is pricing in cuts of just 63 basis points from around August. This has contributed to some of the relative strength of the pound.
Overall, this is likely to be a volatile week as six major central banks meet to decide on policy. Interest rate cuts are not yet on the agenda, but communications will be closely monitored and changes in tone and expectations will move markets.
What to expect from global central banks this week?
The FOMC meeting on Wednesday will be the highlight of the week but there is not much room for excitement. No policy changes are expected, and it would be a surprise to see any change in the cautious tone so soon after Jerome Powell's testimony. Ultimately, this gives a slightly dovish bias to the expected reaction in the US dollar. Also, it means that we could see a very bullish reaction if the Fed makes any hawkish shift.
EUR/USD Technical analysis and forecast:
As we expected, the price of the EUR/USD pair will remain in narrow ranges with a downward slope, and according to the performance on the daily chart. Technically, the psychological support level of 1.0800 will remain the most important for more bears’ control over the trend. Also, by breaking the level will stimulate a stronger downward move towards the support levels of 1.0755 and 1.0690. In turn, the technical indicators will move towards strong oversold levels. On the other hand, the psychological resistance of 1.1000 will remain the most important to confirm the bulls’ control over the trend. Today, the Euro/Dollar will react to the announcement of the German ZEW reading and the US housing market numbers.
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