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EUR/USD Forecast Points to 1.05, As ECB Rhetoric Shifts to Rate Cuts

ECB member Fabio Panetta

EUR/USD has been declining for 6 weeks, as the FED tilts slightly hawkish while the ECB turns dovish, pressing on rate cuts. Last week we saw a retrace higher, but it’s unlikely to last due to central bank divergence, and 1.05 will be the first major target for EUR/USD sellers.

EUR/USD held a moderate posture last week, trading in the range between 1.07-08 with only a slight bullish momentum, as the USD was retreating lower. Despite that, this forex pair is trading below the pivot point around 1.08, indicating a tentative negative bias on the H4 timeframe, as shown on the chart above.

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EUR/USD Chart H4 – MAs Keeping the Trend Bearish

Moving averages are acting as resistance on the H4 chart, keeping retraces higher in check. The retrace last week stopped right at the 50 SMA (yellow), which stood just below 1.08. Concurrently, the expectation that the European Central Bank (ECB) would begin interest rate cuts as early as Q2 poses issues for the Euro, putting negative pressure on the EUR/USD. Last week there were many European Central Bank members who mentioned rate cuts repeatedly, with Panneta closing the week on Saturday saying that “the time for a reversal of the monetary policy stance is fast approaching.”

Governor of the Bank of Italy and European Central Bank Governing Council Member Fabio Panetta

  • His comments underscore the “importance of deliberating on the conditions necessary to initiate monetary easing while mitigating risks to price stability and preventing undue harm to the real economy.”
  • The “policy board will carefully weigh the advantages and disadvantages of implementing interest rate cuts promptly and gradually versus delaying them and potentially adopting a more aggressive approach, mindful of the potential for increased volatility in financial markets and economic activity.”
  • Speculating on the precise timing of monetary easing is deemed futile.
  • Inflation is declining at a pace comparable to its previous rise, and
  • While there is a notable increase in nominal wages, this is offset by declines in other expenses for firms.
  • There is not a significant perceived risk of inflationary effects stemming from concerns in the Red Sea region, there is but he acknowledged the possibility of further escalation in that area.
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Skerdian Meta
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Skerdian Meta Lead Analyst. Skerdian is a professional Forex trader and a market analyst. He has been actively engaged in market analysis for the past 11 years. Before becoming our head analyst, Skerdian served as a trader and market analyst in Saxo Bank's local branch, Aksioner. Skerdian specialized in experimenting with developing models and hands-on trading. Skerdian has a masters degree in finance and investment.
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