- EUR/USD extended the bounce to the proximity of 1.0800.
- ECB C. Lagarde reiterated the data dependent stance of the bank.
- The European Commission revised lower its GDP forecast for 2024.
Another moderate decline in the US dollar (USD) led to a further advance in risk-oriented assets on Thursday, sponsoring extra gains in EUR/USD to the proximity of the key barrier at 1.0800 the figure.
The decline in the Greenback coincided with a modest decrease in US bond yields across different maturities, all against the backdrop of steady speculation of a potential interest rate cut by the Federal Reserve (Fed) later in the year.
On this, the CME Group’s FedWatch Tool indicates a roughly 40% probability of a rate reduction by the Fed at its May 1 gathering, while the likelihood of such a move stands at nearly 50% for the month of June.
The possibility of the Federal Reserve (Fed) initiating a cycle of monetary easing in the next few months was further reinforced after US inflation data exceeded expectations in January, a view that remains bolstered by robust fundamentals and the still tight labour market.
On the European Central Bank’s (ECB) side, President Christine Lagarde emphasized that the bank’s wage tracker, which provides forward-looking information, indicates ongoing strong wage pressures. She also mentioned that despite the expectation of a continuing trend of low inflation, the ECB’s Governing Council is committed to effectively steering the economy towards achieving the sustainable 2% inflation target. Lagarde further stated that the ECB will maintain a data-driven strategy in its decision-making process.
On another front, the European Commission (EC) published its Winter Forecast, and it has revised its projection for eurozone GDP growth in 2024 downward, now expecting it to be 0.8% (from November’s 1.2%) while anticipating a growth of 1.5% for 2025. Additionally, the EC predicts a slower growth rate for the German GDP in 2024, forecasting it to be 0.3% (from 0.8%), with a projected growth of 1.2% for 2025. Furthermore, the Commission foresees a decrease in Eurozone inflation, estimating it to drop to 2.7% in 2024 from 5.4% in 2023 and further decelerating to 2.2% in 2025.
EUR/USD daily chart
EUR/USD short-term technical outlook
If EUR/USD clears the lowest point of 2024 at 1.0694 (February 14), it might next target the November 2023 bottom of 1.0516 (November 1). The loss of the latter might trigger a move to the weekly low of 1.0495 (October 13, 2023), prior to the 2023 bottom of 1.0448 (October 3) and the round level of 1.0400.
As long as the EUR/USD trades below the 200-day Simple Moving Average (SMA) of 1.0827, the pair’s outlook is likely to stay bearish.
Contemplating a move above the 200-day SMA, next on the upside for EUR/USD emerges the weekly top of 1.0932 (January 24) in order to reach the next weekly peak of 1.0998 (January 11), which underpins the psychological barrier at 1.1000. Further north of this area correlates with the December 2023 high of 1.1139 (December 28).
Looking at the four-hour chart, some support has appeared around the 1.0700 level. If bullish advances continue, they may aim for 1.0805, which corresponds to the 100-day moving average. The next levels to watch would be the 200-SMA at 1.0873, which is ahead of 1.0897. On the other side, a break below 1.0694 indicates a beginning fall to 1.0656. The Moving Average Convergence Divergence (MACD) has retreated deeper into the negative territory, while the Relative Strength Index (RSI) is hanging around 43.
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