- EUR/USD dropped to multi-session lows near 1.0870.
- The Dollar started the week on a firm note ahead of the FOMC.
- Next on the downside for the pair comes the 200-day SMA.
Further upward bias in the Greenback weighed on the riskier assets, lending further legs to the US Dollar Index (DXY) and keeping the price action around EUR/USD subdued well below the 1.0900 support.
In this context, spot reached multi-day lows in the 1.0870–1.0865 band, while the USD Index (DXY) flirted with the key 200-day SMA near 103.70.
The Dollar’s renewed strength coincided with another strong performance in US yields across various maturity periods, mirroring the upward movement seen in German 10-year bund yields, which rose to the vicinity of 2.50%.
Looking at the broader macroeconomic landscape, both the Federal Reserve (Fed) and the European Central Bank (ECB) are expected to begin their easing cycles, possibly in June. However, the pace of subsequent interest rate cuts may vary, potentially leading to different strategies for both central banks. Nevertheless, the ECB is not expected to significantly lag behind the Fed.
According to the FedWatch Tool provided by CME Group, the probability of a rate cut in June has now decreased to just above 50%.
All in all, the relatively sluggish fundamentals of the euro area, coupled with the resilient US economy, strengthen expectations of a stronger Dollar in the medium term, particularly as both the ECB and the Fed potentially implement their easing measures almost simultaneously. In such a scenario, EUR/USD could experience a more significant correction, initially targeting its year-to-date low around 1.0700 before potentially revisiting the lows observed in late October 2023 or early November in the 1.0500 region.
EUR/USD daily chart
EUR/USD short-term technical outlook
The breakout of the March peak of 1.0981 (March 8) may push EUR/USD to challenge the weekly high of 1.0998 (January 11), strengthening the psychological barrier of 1.1000 and putting it ahead of the December 2023 top of 1.1139 (December 28).
On the downside, if the pair falls below the 200-day SMA at 1.0838, it might reach its 2024 low of 1.0694 (February 14). The November 2023 low of 1.0516 (November 1) is next, followed by the weekly low of 1.0495 (October 13, 2023), the 2023 bottom of 1.0448 (October 3), and the round level of 1.0400.
Meanwhile, additional gains are expected in the immediate term as long as EUR/USD remains above its 200-day Simple Moving Average (SMA).
The 4-hour chart shows that the downward trend has been renewed. That said, the initial level of support is 1.0866, ahead of the 200-SMA at 1.0828 and 1.0761. The next upward obstacle appears to be 1.0981, followed by 1.0998. The Moving Average Convergence Divergence (MACD) dropped to the negative ground, while the Relative Strength Index (RSI) fell below 33.
