- EUR/USD’s bounce picks up extra pace on Wednesday.
- ECB’s Schnabel advocates for a later interest rate cut.
- The sell-off in the greenback allows the recovery in the risk complex.
The continuation of the corrective decline in the US Dollar (USD) allowed further breathing room for EUR/USD and encouraged it to revisit the 1.0780 zone, where the transitory 100-day SMA also sits.
Indeed, the Greenback slipped back to the 104.00 neighbourhood on the back of an equally persistent move lower in US yields across different timeframes at the time when investors continued to evaluate the likelihood that the Federal Reserve (Fed) might kick off its easing cycle at the May or June events.
The aforementioned is supported by recent remarks from Chair Jerome Powell, who signaled the Fed’s commitment to maintaining a prudent approach to interest rate changes. He also stressed the need for increased confidence before contemplating any decreases in interest rates. Bolstering this view, Minneapolis Fed Neel Kashkari suggested on Wednesday the Committee can take time to evaluate the data before start cutting rates, adding that 2-3 rate cuts this year seem appropriate.
Back to rate cuts, the probability of a 25 bps rate reduction in May hovers around 56% and just past 31% in June according to CME Group’s FedWatch Tool.
Still around central banks, although on the opposite side of the ocean, the ECB’s Board member Isabel Schnabel expressed that we are now entering a crucial stage where the precise adjustment and implementation of monetary policy are of utmost importance, as the focus is on managing the potential ripple effects. Unfortunately, the latest data that has been received does not alleviate her concerns that the final stretch of this process might prove to be the most challenging. Considering these factors collectively, she advised to exercise caution and refrain from making immediate changes to the policy stance.
EUR/USD daily chart
EUR/USD short-term technical outlook
If EUR/USD breaches the 2024 bottom of 1.0722 (February 6), it may then set sail towards the November 2023 low of 1.0516 (November 1), followed by the weekly low of 1.0495 (October 13, 2023). This would be followed by the 2023 low of 1.0448 (October 3) and the round level of 1.0400.
The outlook for the pair is expected to turn bearish if it consistently surpasses the significant 200-day SMA at 1.0834.
On the upside, spot must break above the weekly high of 1.0932 (January 24), in order to reach the next weekly top of 1.0998 (January 11), which reinforces the psychological barrier of 1.1000. Further north from this point aligns the December 2023 peak of 1.1139 (December 28).
The four-hour chart currently indicates a gradual recovery. That said, bullish efforts may seek to test the 55-SMA at 1.0810 before moving on to the 100-SMA at 1.0842, all ahead of 1.0897. On the flip side, the breach of 1.0722 exposes a drop to 1.0656. The MACD remains bearish, and the RSI eases to the vicinity of 43.