All eyes on the ECB (Chart)

All eyes on the ECB (Chart)
All eyes on the ECB (Chart)
  • Prior to the release of Eurozone inflation data and thus new comments from US Federal Reserve Governor Jerome Powell, the EUR/USD pair continued its strong downtrend.
  • Losses extended to the support level of 1.0724, the lowest in a month and a half, before quickly rebounding to 1.0770 in early trading on Wednesday.

It is clear that the euro-dollar exchange rate has benefited from the decrease in the number of job openings in the United States. The losses in the euro-dollar came as investors expected more stimulus from the European Central Bank than the U.S. Federal Reserve this year. Overall, financial markets have slightly increased expectations for future rate cuts by the ECB, forecasting 93 basis points for 2024. This follows German regional data on the consumer price index indicating a significant slowdown in pressures inflation rates across the country in March.

Furthermore, core 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 US interest rate cut this year after data revealed that the US manufacturing sector unexpectedly returned to growth in March, recording the first such growth in 18 months.

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At the start of the new trading week, the US dollar rose following a strong market reaction to stronger-than-expected US economic data, which put the possibility of a rate cut by the Federal Reserve on hold at June. According to forex trading platforms, the euro-dollar exchange rate fell to 1.0725, the lowest level since February, after the US manufacturing PMI rose to 50.3 in March from 47.8 in February, far exceeding long expectations of 48.4. Prices listed in the report rose to 55.8, beating estimates of 52.6, indicating that inflationary pressures facing U.S. companies are rising again.

After the data was released, implicit expectations of a rate cut by the Fed in June fell, lifting 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.

Of course, our daily Euro Dollar forecast indicates a good chance that this will be another bearish week, as we have already recorded a decline of 0.60%. Commenting on the currency pair’s performance, Convera expert Boris Kvasovic says: “After just one day of trading, the US dollar rose more this week than it did the entire previous day, highlighting how surprised they were the markets from exceeding the PMI”.

Looking at this week’s economic calendar, the ISM Services PMI (Wednesday) and the Job Openings and US Nonfarm Payrolls report (Friday) will be watched closely. Additionally, comments from several U.S. Federal Reserve officials. Overall, the EUR/USD currency pair is on track for a fourth consecutive week of decline if 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 euro zone, the release of inflation data mid-week will be the main event, with the single currency likely to come under further pressure if the final reading falls below the main market 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 the fourth quarter of 2024.
Meanwhile, the main driver of our bearish view on EUR/USD is the growing policy divergence between an increasingly accommodative ECB and a more hawkish US Federal Reserve.

Overall, Credit Agricole believes next week’s April ECB monetary policy meeting could add downside risks to the pair, especially if President Christine Lagarde “pre-commits” to a rate cut in June as the ECB looks to upgrade guidance reports with further cuts beyond that. The euro could be vulnerable to any negative data surprises that could encourage investors to raise their expectations for an ECB rate cut in the near term. You can exchange our euro dollar exchange rate forecasts with one of the best authorized trading brokers in Italy.

From the point of view of Forex technical analysis, 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 keep bears in greater control. As we have already said, the overall trend of the EUR/USD pair will remain bearish until it reacts to the US employment numbers announcement later this year. Next week and the increase in strong momentum for the dollar could give bears an opportunity to move towards the next support levels of 1.0720 and 1.0645, respectively, from which technical indicators will move towards strong oversold levels. On the other hand, based on the performance on the daily chart, the psychological resistance of 1.1000 will remain the most important to cause an uptrend change.

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