EUR/USD Forecast: The hunt for 1.0800

  • EUR/USD sank to the area of yearly lows near 1.0820.
  • The ECB left its policy rates unchanged, as expected.
  • Lagarde’s press conference came on the apathetic side.

The lack of surprises from the European Central Bank event, particularly from President Lagarde’s press conference, forced EUR/USD to come all the way down and revisit the 1.0825/20 band on Thursday.

Still around the ECB, the central bank matched the broad consensus and left its policy rates unchanged. Later in the day, Chair Lagarde reported that there is a consensus that the bank must be data-dependent and reiterated her previous comments on rates (summer cut?). She stated that risks to growth are tilted to the downside and expressed hope that wage increases are sufficiently absorbed by profits. Lagarde mentioned that there is a consensus at the table that it is premature to talk about rate cuts.

Also contributing to the selling pressure in the European currency, Germany’s Business Climate tracked by the IFO institute eased to 85.2 for the current month (from 86.3), contrasting somewhat with recent upbeat surprises from PMIs in the region.

On the other side of the coin, firmer-than-expected flash US Q4 GDP figures lent extra legs to the greenback, helping the index maintain its positive streak since the beginning of the year. Mixed US yields across the curve seem to have limited some upside potential in the USD Index (DXY), along with an unexpected uptick in weekly jobless claims and the flat performance of Durable Goods Orders in December.

Around the Federal Reserve, recent prints from key US fundamentals underpinned the view of a resilient economy, therefore motivating the central bank to push back a potential interest rate cut to (most likely) May (from March). According to CME Group’s FedWatch Tool, the probability of such a scenario surpasses 51% from nearly 12% a month ago.

Moving forward, a soft surprise at Friday’s publication of inflation gauged by the PCE could see those probabilities strengthened further in detriment of a rate reduction in March, carrying the potential to maintain the upside pressure in the greenback in the very near term at least.

EUR/USD daily chart

EUR/USD short-term technical outlook

If the EUR/USD falls further and breaches the 2024 bottom of 1.0821 (January 23), it might then confront the temporary 100-day SMA at 1.0774 before hitting the December 2023 low of 1.0723 (December 8). The breakdown of this level should not get major support until the weekly low of 1.0495 (October 13, 2023), which comes ahead of the October 2023 low of 1.0448 (October 3) and the round level of 1.0400.

The pair’s outlook is expected to turn negative if it consistently clears the key 200-day SMA, which is now at 1.0843.

On the upside, spot needs to leave behind the weekly high of 1.0998 (January 11) to open the door for a possible visit to the December top of 1.1139 (December 28).

According to the 4-hour chart, the pair flirts with the lower end of the ongoing consolidation near 1.0820. to have returned to the consolidation phase. Down from here emerges 1.0723. Bullish attempts, on the other hand, might strive for a challenge of 1.0932 prior to 1.0998. The MACD flirts with the zero zone, and the RSI plummets below 40.

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