- The Euro weakened after a 25 basis points rate hike from the ECB.
- The US dollar is under pressure amid US banking concerns ahead of NFP.
- EUR/USD dropped towards 1.1000 after Fed and ECB meetings but is still above the 20-day SMA.
The EUR/USD pair declined after Thursday's European Central Bank (ECB) meeting despite a weaker US dollar. The pair dropped below 1.1000 but quickly rebounded above, moving away from the 1.1100 level.
The Euro struggled as European bond yields declined, while the US Dollar weakened despite falling equity prices on Wall Street. The Greenback is under pressure due to lower US yields as markets reassess their expectations for Federal Reserve (Fed) rate cuts in the second half of the year.
As anticipated, the ECB announced a 25 basis point hike in its key interest rates, a departure from the half-point increases in its previous three policy meetings. The central bank also revealed the termination of asset purchase program (APP) reinvestments from July 2023. Although the ECB did not reintroduce forward guidance, it clarified that further rate hikes are likely. ECB President Lagarde mentioned that some governors believed a 50 basis point hike was appropriate. Market participants expect at least two more 25 basis point rate hikes at the next two meetings.
On Friday, the Eurozone will release Retail Sales data for April. The key event on Friday will be the US official employment report. The positive ADP report on Wednesday did not help the US Dollar. Still, a surprise in the payrolls report could lead to a different outcome, particularly given the recent dollar's performance.
EUR/USD short-term technical outlook
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The slide of the EUR/USD pair on Monday found support above the 20-day Simple Moving Average (SMA) and rebounded above 1.1000. Despite the retreat, the trend remains up and has some momentum. However, a daily close below 1.0960 would signal a deeper correction. A breakout above 1.1100 would clear the way to more gains.
On the 4-hour chart, technical indicators offer mixed signals, with Momentum and the Relative Strength Index (RSI) flat at midlines. The pair is trading at the 20-period SMA, with a modestly bearish bias in the short term but without much conviction. The Euro needs to reclaim levels above 1.1045 to regain the initiative.
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