During the early European session on Friday, the EUR/USD remains stable around 1.0850 after a decline in the preceding session. Furthermore, the US Dollar gained profits on Thursday due to better-than-expected US GDP data, serving as a hindrance for the pair.
If the EUR/USD continues its decline and breaches the 2024 bottom of 1.0821 (recorded on January 23), it could encounter the temporary 100-day SMA at 1.0774 before reaching the December 2023 low of 1.0723 (noted on December 8). A breakdown below this level may face limited support until it reaches the weekly low of 1.0495 (October 13, 2023), preceding the October 2023 low of 1.0448 (October 3) and the psychological level of 1.0400.
The pair’s overall outlook is anticipated to turn negative if it consistently surpasses the crucial 200-day SMA, currently situated at 1.0843.
On the positive side, the EUR/USD needs to surpass the weekly high of 1.0998 (on January 11) to potentially pave the way for a visit to the December top of 1.1139 (recorded on December 28).
Examining the 4-hour chart, the pair is hovering near the lower end of the ongoing consolidation around 1.0820. A move lower from this point could lead to a retest of 1.0723. Conversely, bullish attempts may aim for a challenge of 1.0932 before reaching 1.0998. The MACD indicator flirts with the zero zone, while the RSI drops below 40.
The European Central Bank event, particularly President Lagarde’s press conference, failed to deliver surprises, prompting EUR/USD to retreat and revisit the 1.0825/20 range on Thursday.
Regarding the ECB, the central bank adhered to the widespread consensus by keeping its policy rates unchanged. During the day, Chair Lagarde emphasized the importance of being data-dependent and reiterated her earlier comments on rates, hinting at a potential cut in the summer. She noted that growth risks lean towards the downside and expressed optimism that wage increases would be absorbed by profits. Lagarde also indicated a consensus at the table that it is premature to discuss rate cuts.
Adding to the selling pressure on the Euro, Germany’s Business Climate, as measured by the IFO institute, declined to 85.2 for the current month, contrasting with the positive surprises from recent PMIs in the region.
On the flip side, stronger-than-expected preliminary US Q4 GDP figures provided additional support to the greenback, allowing the index to maintain its positive trend since the beginning of the year. Mixed US yields and unexpected increases in weekly jobless claims, along with the flat performance of Durable Goods Orders in December, somewhat tempered the upside potential in the USD Index (DXY).
Regarding the Federal Reserve, recent data from key US fundamentals reinforced the perception of a resilient economy, leading the central bank to likely delay a potential interest rate cut to May from March, according to CME Group’s FedWatch Tool, with the probability of such a scenario surpassing 51%, up significantly from nearly 12% a month ago.
Looking ahead, a modest surprise in Friday’s release of inflation measured by the PCE could further strengthen the probabilities against a rate reduction in March, potentially sustaining upward pressure on the greenback in the very near term, at least.