- EUR/USD reversed part of its recent gains on Monday.
- ECB’s F. Panetta left the door open to interest rate cuts.
- German 10-year bund yields traded with marginal losses.
The tepid bounce in the Greenback prompted a slight retracement in the risk-associated universe at the beginning of the week, prompting EUR/USD to retreat to the mid-1.0700s after an ephemeral test of the area above 1.0800 the figure.
The resurgence of buying interest in the US Dollar followed the ongoing upward movement in US yields across different timeframes, while investors continued to evaluate the possibility of the Federal Reserve (Fed) starting its easing cycle either in May or June.
Recent statements from Chair Jerome Powell further solidified this assessment, emphasizing the Fed’s cautious approach to interest rate adjustments and the need for increased confidence before considering any cuts.
Supporting the above, Minneapolis Fed President Neel Kashkari suggested last week that the Committee should carefully assess data before deciding on rate cuts, indicating that 2-3 rate cuts this year might be appropriate. Meanwhile, his colleague Thomas Barkin (Richmond) suggested on Thursday that upcoming inflation data are expected to be favourable.
Regarding rate cuts, investors still anticipate the Fed to hold rates steady at the March 20 meeting, while the likelihood of a 25 bps rate cut on May 1 is close to 51%, according to CME Group’s FedWatch Tool.
On the other side of the road, during a conference on Saturday, Fabio Panetta, a member of the ECB Governing Council and the chief of the Bank of Italy, expressed that the moment is rapidly approaching for a shift in the monetary policy stance. He pointed out that inflation has declined rapidly and emphasized that implementing rate cuts, albeit late yet aggressively, could potentially result in market volatility.
EUR/USD daily chart
If the EUR/USD breaches the 2024 low of 1.0722 (February 6), it might next go for the November 2023 low of 1.0516 (November 1), followed by the weekly low of 1.0495 (October 13, 2023). This will be followed by the 2023 low of 1.0448 on October 3 and the round level of 1.0400.
The pair’s outlook is predicted to remain bearish as long as it keeps its trade below the 200-day SMA at 1.0830.
On the upside, spot must break above the weekly top of 1.0932 (January 24) to reach the next weekly peak of 1.0998 (January 11), which reinforces the psychological barrier at 1.1000. Further north of this point aligns the December 2023 high of 1.1139 (December 28).
The four-hour chart now indicates some progress. However, bullish moves may try to target 1.0805 before moving on to the 100-SMA at 1.0824, all ahead of 1.0897. On the other side, a break below 1.0722 indicates a fall to 1.0656. The MACD flirts with the positive zone, and the RSI rebounds to the 48 area.
