- EUR/USD charted an inconclusive session on Thursday.
- ECB’s Holzmann said the ECB might not cut rates this year.
- The small rebound in the Greenback limited the upside in spot.
The late loss of momentum in the US Dollar sparked some rebound in the risk complex, leaving EUR/USD hovering around the 1.0770/80 region on Thursday and still capped by the provisional 100-day SMA.
Indeed, the Greenback’s initial bullish move ran out of steam and receded to the vicinity of the 104.00 zone despite the continuation of the march north in US yields across various timeframes. Furthermore, investors continued to assess the likelihood of the Federal Reserve (Fed) initiating its easing cycle at either the May or June gatherings.
This assessment is reinforced by recent statements from Chair Jerome Powell, who indicated the Fed’s commitment to a cautious approach regarding interest rate adjustments. He emphasized the necessity for increased confidence before considering any rate cuts.
Supporting the above, Minneapolis Fed Neel Kashkari suggested on Wednesday that the Committee should take its time to assess data before implementing rate cuts, suggesting that 2-3 rate cuts this year may be appropriate. His colleague Thomas Barkin (Richmond) suggested on Thursday that upcoming inflation readings are likely to be favourable.
Regarding rate cuts, investors still see the Fed refraining from any move on rates at the March 20 meeting, while the probability of a 25 bps rate cut on May 1 surpasses the 51% according to CME Group’s FedWatch Tool.
Shifting focus to the ECB, Board member Robert Holzmann (hawk) suggested the certain chance that the central bank might not cut its policy rate this year. His colleague Philip Lane suggested that we must progress further in the disinflation process to attain sufficient confidence that inflation will reach the target promptly and remain sustainably at the target level.
EUR/USD daily chart
If EUR/USD breaks the 2024 bottom of 1.0722 (February 6), it may then set sail 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 (October 3) and the round level of 1.0400.
The pair is expected to become bearish if it consistently breaches the crucial 200-day SMA at 1.0833.
On the upside, spot has to break above the weekly top of 1.0932 (January 24) to reach the next weekly peak of 1.0998 (January 11), which strengthens the psychological barrier of 1.1000. Further north from this point aligns the December 2023 high of 1.1139 (December 28).
The four-hour chart now shows a modest improvement. However, bullish attempts may aim to challenge the 55-SMA at 1.0802 before going on to the 100-SMA at 1.0836, all ahead of 1.0897. On the other hand, a break below 1.0722 reveals a decline to 1.0656. The MACD remains negative, while the RSI rebounded to the 50 region.
