Saad Ullah
EUR/USD plunges to the lower 1.08s as robust US economic indicators bolster the US Dollar, dampening the likelihood of Fed interest rate cuts.
EUR/USD in Decline Amid US Economic Strength
EUR/USD witnessed a downturn, dipping into the lower 1.07305s, propelled by robust US macroeconomic data favoring the US Dollar (USD). This surge in data support has diminished the probability of the US Federal Reserve (Fed) implementing interest rate cuts by June, reducing it by close to 50%. The prospect of sustained higher interest rates in the US remains a pivotal factor in attracting capital inflows and bolstering the USD.
Divergence in Central Bank Strategies Pressures EUR/USD
The European Central Bank (ECB) faces a different scenario, characterized by slower growth and subdued inflation. Unlike the Fed, ECB rate-setters are not as inclined towards cutting interest rates to stimulate economic growth. This discrepancy in monetary policy trajectories between the two central banks exerts downward pressure on EUR/USD.
EUR/USD's descent continued as robust US economic indicators emerged over the Easter weekend, breaching the significant 1.08 level. The indicators suggest a potential delay in Fed interest rate cuts, as inflation is projected to remain above target levels. Notably, the core Personal Consumption Expenditures Price Index (PCE) in February maintained a robust 2.8%, consistent with expectations. Additionally, US Manufacturing data for March exceeded forecasts, marking the first expansion in the sector since November 2022.
EUR/USD faced downward pressure amidst speculations of an ECB rate cut, as another ECB rate setter advocated for such a move. Robert Holzmann, a member of the ECB Governing Council, hinted at the possibility of an interest rate cut before the Fed, contingent upon wage and price developments by June.
Technical Analysis: Downward Trend Persists for EUR/USD
EUR/USD continues its downward trajectory, initiated from the March 8 high. The pair is currently approaching key support levels at the 1.0694 year-to-date (YTD) lows. Despite oversold conditions signaled by the Relative Strength Index (RSI) momentum indicator, indicating caution for sellers, a decisive break below the 1.0694 support level could intensify the downtrend, targeting the 1.0650s.
Saad Ullah
