EUR/USD Analysis Today – 05/02: Downtrend Firms (Chart)

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EUR/USD drops to a 7-week low after Powell downplays a March rate cut. Support at 1.0779 under watch; market awaits Eurozone, US data, and Fed’s rate decision impacts.

  • The EUR/USD currency pair fell to its lowest level in 7 weeks, with losses extending to the support level of 1.0779, as US Federal Reserve Chairman Powell said that a US rate cut in March is unlikely.
  • Briefly, the dollar had declined after the Fed’s latest policy decision, but Powell’s comments that a US rate cut in March is unlikely were decisive and the dollar made significant net gains. 

EUR/USD Analysis Today - 05/02: Downtrend Firms (Graph)

Also, risk appetite was less confident amid concerns from US regional banks, which helped to support the US currency. For its part, the Fed kept interest rates at 5.5% after its latest policy meeting, in line with agreed expectations. According to the bank’s statement, the committee “does not expect it will be appropriate to lower the target range until it gains more confidence that inflation is moving sustainably towards 2%.” 

The focus was on US Federal Reserve Chairman Jerome Powell’s press conference in which he was keen to stress that there have been a good six months of inflation data, and the Fed expects this progress to continue. However, Powell also insisted that the US central bank wants to confirm the positive trend before cutting interest rates. In response to a direct question, Powell stated that interest rates were unlikely to be cut at the policy meeting in March. Ultimately, the warning would be if there was evidence of a significant deterioration in the Labor market. 

According to ING Bank forecasts, “We see no sufficient reason to change our view that the EUR/USD pair continues to trade near the 1.08 support during most of this quarter, before rising during the second quarter when it becomes clear that a Fed rate cut is imminent.” Also, ING noted the importance of inflation data with the next consumer price report scheduled for February 13 and record revisions on February 9. At the same time, there were new concerns about regional banks recently after New York Community Bancorp reported a huge loss for the fourth quarter of 2023 amid a sharp increase in provisions against potential loan losses. 

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On the economic side, headline inflation in the euro zone fell to 2.8% for January from 2.9% previously. However, this was slightly higher than expectations of 2.7%. The base rate fell to 3.3% from 3.4%, but is also slightly higher than market expectations of 3.2%. 

Bank expectations for the EUR/USD rate: According to ING Bank, a decisive breakout of the 1.0790-1.0800 range opens the way for the 1.0715/25 support areas. Also, Westpac expects a range between 1.0650 and 1.1000 over the next few weeks. 

The downward channel is still prominent for the price performance of the currency pair EUR/USD, and stability below the psychological support level of 1.0800 supports the bears’ control over the trend and warns of an upcoming strong movement until the technical indicators reach the oversold levels. Therefore, the continued strength of the US dollar because of the Federal Reserve’s policy and the demand for it as a safe haven may support bears to move towards the support levels of 1.0740 and 1.0660, respectively. On the other hand, according to the performance on the daily chart below, there will be no opportunity for an upward rebound without returning to the 1.1000 psychological resistance area again. Today, the EUR/USD pair will be affected by the announcement of the Purchasing Managers’ Index reading for the services sector from the Eurozone and the United States of America, in addition to the extent of investors’ appetite for risk or not. 

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