Euro forecast: bearish
- EUR/USD has consistently risen since mid-February
- Markets believe the Fed will cut interest rates first, a scenario that favors euro bulls
- EUR/USD could see some consolidation this week, if not necessarily a significant decline.
Most read: USD/JPY falls on speculation that the Bank of Japan will soon end negative interest rates, focusing on US inflation
The euro has appreciated strongly against the US dollar over the past few sessions, thanks to comments from both the European Central Bank and the US Federal Reserve.
Federal Reserve Chairman Jerome Powell said on March 9 that he and his colleagues are “not far off” from cutting interest rates. Meanwhile, the European Central Bank left its monetary policy settings for March unchanged, acknowledging that inflation conditions look more positive but saying more data is needed to bring down the eurozone’s record borrowing costs. he suggested.
Official U.S. labor statistics show overall unemployment rising as wage growth slows, with market firmly focused on rate cuts, even as overall non-farm payrolls growth exceeds expectations It is clear that these two factors are responsible for what is happening.
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In short, the euro is rising because all of the above has given the market a clear impression that interest rates in the US will fall before the eurozone. However, given that the market is fairly confident that both will fall, the current euro outperformance may seem a bit overdone and the prospect of some consolidation is only reasonable.
In any case, more economic data will be released next week for the dollar than for the euro. Germany’s inflation figures will be released on Tuesday and will be in the spotlight. Price increases are expected to slow in February, but the key 2% level is expected to remain in place. Of course, Germany is the eurozone’s largest economy, but these numbers could lose weight as the ECB needs to balance the needs of other countries.
The big numbers to watch in the US this week will include retail sales, consumer sentiment and inflation.
Any or all of these will impact interest rate expectations, but given the euro’s current strength and likely weakness, the outlook is bearish this week.
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|
change |
long |
shorts |
OI |
| every day | -2% | -7% | -Five% |
| weekly | -twenty three% | 17% | -3% |
EUR/USD technical analysis
Charts created using TradingView
EUR/USD rebounded at the trendline support at 1.06917 in mid-February and has been rising strongly since then with many green candlesticks on the chart. It has now inched back into the trading band where it crashed in early February and has fallen to its support.
The band currently offers its own support at the intraday low of January 17th and 18th at 1.08524. The top of the range is at the intraday high of January 5th and 11th at 1.09981. If it rises to that level in the short term, we will probably move away from the euro. However, it appears to be quite seriously overbought as the EUR/USD Relative Strength Index has already climbed towards the 70.0 region, suggesting overbought conditions.
For euro bulls, psychological resistance at 1.10 seems tough at the moment, with sellers emerging on the approach to that level.
The current broad uptrend channel has short-term resistance at 1.09788 and a reversal is likely to strengthen ahead of the current channel base at 1.08282.
–Written by David Cottle of DailyFX
