Will There Be A Bounce in EUR/USD After the Retreat Stops at the 200 Daily SMA?

EUR/USD turned bullish in the last few months of 2023 as the FED started giving dovish signals, after the summer retreat. However, it failed to make a new high for the year after the reversal at the end of December and the price has fallen around 300 pips lower, closing below 1.09. But, the bullish trend is not over yet, especially if we see a bounce off the 200 daily SMA this week, which held as support last week.

This forex pair turned lower in the last few days of 2023 but it found support at the 50-day SMA (yellow), which pushed the lows higher for more than a week. However, this moving average was broken on Tuesday as the USD resumed the bullish momentum. The US retail sales and unemployment claims figures were quite strong which kept pushing the USD higher, however, it failed to make further gains against the Euro as the 200 SMA (purple) stood its ground and provided solid support.

Besides that, we’ve seen several European Central Bank members trying to push back on the idea of rate cuts, which were the main reason for keeping the Euro supported, thus this pair was holding up better than other major forex pairs. ECB policy members have been popping up every day in the last two weeks, but they haven’t really been able to convince markets otherwise.

J.P. Morgan has updated its ECB interest rate estimate, expecting the first drop to come in June, forwarded three months in advance from September. They are now anticipating earlier and steeper rate cuts, with analysts suspicious of the trend in core CPI inflation. They forecast a total of 100bps cuts from the ECB this year, up from 75bps earlier. If other firms make such adjustments to the ECB policy path, then it’s likely that EUR/USD will break below the 200 daily SMA. In the meantime, we will see if ECB members will continue to push back on rate cuts or will go quiet, which will be very bearish for the Euro.

EUR/USD Live Chart