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EUR/USD Price Forecast: Sinks Below 1.080 After German Retail Slump
Arslan Butt•Thursday, March 28, 2024•2 min read
The EUR/USD pair has witnessed a downturn, dropping below the crucial support level of 1.0800, influenced by disappointing German retail sales data that highlighted a deeper economic malaise in Europe’s economic powerhouse.
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The currency pair’s decline is compounded by a recalibration of expectations surrounding the Federal Reserve’s interest rate policy, amidst signs of a more resilient U.S. economy and persistent inflationary pressures.
Fed’s Interest Rate Stance Impacts EUR/USD
The descent of EUR/USD is an extension of a short-term downtrend that began after pulling back from the highs of approximately 1.0980 observed on March 8. The divergence in policy direction between the Federal Reserve and the European Central Bank has been a significant driver.
Whereas initial signals in March suggested both central banks might lower interest rates by mid-year, recent robust U.S. data and ongoing inflation have led to a reassessment among Fed officials about the appropriateness of early rate cuts.
U.S. Dollar Strengthens, Pressuring Euro
The prospect of enduring higher interest rates in the U.S. has fortified the Dollar, drawing global capital flows in search of higher yields, adversely affecting the EUR/USD exchange rate. The recent remarks by Federal Reserve board member Christopher Waller, emphasizing a cautious approach to rate cuts, underscore this dynamic.
German Retail Sales Decline Weakens Euro Further
The EUR/USD pair took another hit after reports showed a significant drop in German Retail Sales for February, signalling potential further ECB rate cuts. Sales plummeted by 2.7% year-over-year, far below the expected 0.8% decline, with a month-on-month decrease of 1.9%, surprising economists who had anticipated a 0.3% increase.
Anticipated U.S. Economic Data to Shape Outlook
The imminent release of the U.S. core Personal Consumption Expenditures (PCE) Price Index for February, the Fed’s favored inflation measure, is crucial. A result exceeding forecasts could further delay Fed rate cuts, impacting EUR/USD negatively.
Upcoming Economic Indicators:
- U.S. Final GDP (Q/Q): Expected at 3.2%.
- Unemployment Claims: Anticipated around 212,000.
- Chicago PMI: Projected at 45.9, indicating economic activity.
- Pending Home Sales (M/M): Forecasted change of 1.4%.
- Revised UoM Consumer Sentiment: Expected at 76.5.
In conclusion, the EUR/USD price forecast remains bearish, influenced by the Fed’s deliberation on interest rate adjustments and contrasting economic indicators from the U.S. and Eurozone, highlighting a challenging landscape for the Euro against a strengthening Dollar.
EUR/USD Technical Outlook
The EUR/USD pair is currently trading at 1.07905, marking a decline of 0.34%. The currency pair has fallen below the pivot point of 1.08037, signalling a bearish trend. Resistance levels are set at 1.08396, 1.08656, and 1.08937, indicating potential obstacles to any upward movement.
Conversely, support levels at 1.07620, 1.07334, and 1.06948 provide downside protection. The Relative Strength Index (RSI) at 33 suggests oversold conditions, potentially hinting at a forthcoming upward correction.
However, the 50-day Exponential Moving Average at 1.08481 underscores the current bearish sentiment. Should EUR/USD surpass the pivot point, a shift to a more bullish outlook could ensue.
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ABOUT THE AUTHOR
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Arslan Butt
Index & Commodity Analyst
Arslan Butt serves as the Lead Commodities and Indices Analyst, bringing a wealth of expertise to the field. With an MBA in Behavioral Finance and active progress towards a Ph.D., Arslan possesses a deep understanding of market dynamics.His professional journey includes a significant role as a senior analyst at a leading brokerage firm, complementing his extensive experience as a market analyst and day trader. Adept in educating others, Arslan has a commendable track record as an instructor and public speaker.His incisive analyses, particularly within the realms of cryptocurrency and forex markets, are showcased across esteemed financial publications such as ForexCrunch, InsideBitcoins, and EconomyWatch, solidifying his reputation in the financial community.
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