EUR/USD Outlook Ahead of ECB Main Refinancing Rate and Monetary Policy

Talking Points

European Central Bank – ECB

US Consumer Price Index – US CPI

EUR/USD Technical Analysis – Weekly Chart

EUR/USD has been grappling with significant pressure over the past few weeks, caught between the influence of inflation data and the ongoing speculation on the USA and Euro Zone interest rate paths. Since January 1st, 2024, the pair has been trading within a range as high as 1.1000 and as low as 1.0700, and most of the trading days witnessed price action between 1.0780 and 1.0920 as economic and inflation data continued to shape the markets, underscoring the importance of these factors in the pair’s performance.

Source: Bloomberg Finance L.P.

European Central Bank – ECB

• The European Central Bank (ECB) is set to meet this Thursday, April 11th, 2024. For its latest meeting on March 7th, 2024, the ECB kept the interest rate on hold at its current level of 4.5%. According to Bloomberg Analysts’ Survey, the probability of a rate cut for the April 11th,2024, meeting currently stands at 4.4%, compared to 82.2% for the June 6th,2024, meeting.
• Inflation in the Euro Zone has been steadily declining. The Eurozone HICP Y/Y is currently at 2.4%, slightly above the ECB’s target of 2%. The decline in the inflation rate was reflected in all index components, unlike the USA, where service costs remained higher for longer. The Eurozone HICP M/M remains close to its recent averages; however, it rose slightly in January and February 2024. The decline in the Eurozone inflation over the past few months may have impacted the recent weakness of the Euro price against other currencies; thus, traders will be looking for the ECB to clarify their expectations for a June rate cut.

Consumer Price Index – US CPI

• The US CPI, Core CPI M/M, and Y/Y were released on Wednesday, along with the minutes for the FOMC latest meeting. The US CPI and Core CPI rose by 0.4% in March, a similar percentage change to February 2024; the CPI Y/Y rose by 3.5%, compared to 3.2%. The numbers mean that US Inflation may remain higher for longer and, by default, less than expected FED interest rate cuts for 2024. The minutes of the latest FOMC Meeting showed that Policymakers acknowledged the impact of higher rates on growth; however, their main concern is still Inflation.
• More on US CPI: US Consumer Price Index CPI – USDJPY Technical Analysis

EUR/USD Technical Analysis – Weekly Chart

Source: TradingView.com

• The overall long-term chart context remains unchanged and still reflects a “Rising Wedge” formation for the downtrend, which began mid-2021; price action attempted to break below the lower pattern border; however, last week’s candle closed with a hammer formation above the support level represented by the channel lower border, thus adding more weight to the price level. (Highlighted Ellipse)
• Price action is currently trading below its monthly pivot point of 1.0850. The pivot point intersects with EMA9, SMA9, and SMA20, forming a confluence of resistance above the current market price.
• Price action continued to trade below the annual pivot point of 1.0920, representing a critical level to watch for breakouts.
• The EURUSD price decline that occurred after last Friday’s NFP has faded as the price rose back to its opening levels by the end of the trading day, forming a hammer candlestick on the Daily Chart, however, EUR/USD dropped again after high US inflation date.
• RSI remained in line with price action and broke above its moving average.
• The Stochastic Indicator aligns with price action, and the %K line crosses above the %D line.

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