- EUR/USD bounces off new yearly lows near 1.0780.
- Inflation in the euro area surprised to the upside in January.
- Investors’ attention now shifts to US Payrolls on February 2.
Following a drop to new two-month lows near 1.0780, an area also coincident with the transitory 100-day SMA, EUR/USD managed to regain some balance and return to the region well beyond 1.0800 the figure on Thursday.
When it came to the greenback, the USD Index (DXY) remained within the multi-session consolidative range as market participants continued to digest the latest FOMC event on January 31.
On the latter, it is worth recalling that Powell declared that the Federal Reserve is ready to sustain the current policy rate for an extended period, if needed. He noted that consistent advancements in inflation are uncertain and hinted at the possibility of initiating rate reductions at some point this year. Powell underscored the tightness of the labour market while also recognizing the potential adverse impact on the economy if the policy rate reduction is delayed. He emphasized that decisions will be made on a meeting-by-meeting basis, expressing the belief that the policy rate has likely reached its peak and suggesting at the same time that a rate cut in March looked unlikely.
Moving forward, investors’ debate is still expected to keep the door open to the first interest rate cut in March or May, with the probability of those outcomes at around 37% and 60%, respectively, according to CME Group’s FedWatch Tool.
Meanwhile, investors are expected to continue exercising caution in anticipation of the release of the significant US Nonfarm Payrolls report on February 2. This report is expected to provide additional insights into the timing of any potential future decisions on interest rates.
On this, another solid print from Payrolls in January should leave unchanged the notion of a tight labour market and should bolster the perception of a soft landing amidst a stubbornly resilient economy, all eventually lending extra support to the idea of a May rate cut by the Fed and therefore propping up the US dollar as well as yields in the short term at least.
EUR/USD daily chart
EUR/USD short-term technical outlook
If sellers have the upper hand, EUR/USD may revisit the 2024 low of 1.0779 (February 1), a region reinforced by the temporary 100-day SMA at 1.0780, before sliding to the December 2023 low of 1.0723 (December 8). The breach of this level should not get significant support until the weekly low of 1.0495 (October 13, 2023), which precedes the October 2023 low of 1.0448 (October 3) and the round level of 1.0400.
The pair’s outlook is predicted to become bearish if it consistently clears the critical 200-day SMA (1.0839).
On the upside, spot has to break above the weekly high of 1.0932 (January 24) to reach the next weekly top of 1.0998 (January 11), which reinforces the psychological 1.1000 level. Further increases from here might pave the way for a potential attempt to the December high of 1.1139 (December 28).
The four-hour chart reveals a gradual bearish trend for the time being. South of 1.0778 comes 1.0723, which is followed by 1.0656. Bullish attempts, on the other hand, may seek to challenge 1.0932 before 1.0998. The MACD remains negative, but the RSI gains some traction and flirts with 48.
