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EUR/USD Fall Accelerates As FED and ECB Rate Cut Outlook Diverges

The rate of EUR to USD had declined by more than 2 cents this week, as the interest rate projections for the FED and the ECB start to diverge, with markets now expecting more rate cuts from the ECB than the FED for 2024. EUR/USD was trading below 1.09 on Monday but closed the week at 1.0640.

EUR/USD Chart Daily – The Lower Highs Signalled the Decline

The Euro has experienced a significant decline over the past three days, primarily influenced by a hawkish Federal Reserve contrasted with a dovish European Central Bank (ECB). As a result, EUR/USD has plummeted more than 2 cents this week, marking its worst performance in almost a year.

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Although there may be some retracement from severely oversold levels on intraday charts, any upside attempts are expected to be limited. The support level at 1.0720 is likely to now act as resistance. Sellers are targeting levels between 1.06-1.0630 and 1.05-1.0520, which may serve as potential support zones.

On Friday, we saw numerous ECB members deliver dovish remarks, hinting at the possibility of an interest rate cut in June. ECB member Muller indicated that slower inflation increases the likelihood of an interest rate cut in June. This statement aligns with the dovish sentiment expressed by several ECB members, suggesting a willingness to take further monetary policy action to address declining inflationary pressures. Given this scenario, it is challenging to foresee any significant support for the euro in the near term.

FED Members Highlight a Hawksih Outlook

Comments from FED Member Mary Daly

  • Daly acknowledges the strength of the labor market but notes that inflation is not declining as rapidly as it did in the previous year. This suggests that while employment conditions are robust, inflationary pressures are persistent.
  • Daly reminds that the Federal Reserve does not base its decisions solely on individual data points, such as the CPI report. This emphasizes the importance of considering a range of factors when formulating monetary policy.
  • Daly expresses the need to have full confidence that inflation is moving towards the Fed’s target of 2% before considering a rate cut. This indicates a cautious approach to monetary policy, with a focus on achieving price stability.
  • Daly highlights the importance of focusing on broader economic goals rather than the number of rate cuts. This suggests a desire to ensure that monetary policy actions align with the Fed’s objectives of maximum employment and stable prices.

Fed’s Bostic’s Comments:

  • Bostic acknowledges that inflation is expected to ease, but at a slower pace than desired. This indicates that inflationary pressures are present, albeit not at the desired level.
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Skerdian Meta
Lead Analyst
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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