EUR/USD Forecast: Euro could target new 2024 lows on a dovish ECB tone

EUR/USD trades in a tight range below 1.0750 following Wednesday sharp decline.
The European Central Bank (ECB) is forecast to leave key rates unchanged.
The near-term technical outlook points to oversold conditions.

EUR/USD came under heavy bearish pressure and registered its largest one-day loss of 2024 on Wednesday, losing over 1%. The pair holds steady slightly below 1.0750 early Thursday as investors await the European Central Bank (ECB) monetary policy announcements.

Stronger-than-forecast US inflation data for March caused investors to refrain from pricing in a Federal Reserve (Fed) rate cut in June and provided a boost to the US Dollar (USD).

The Consumer Price Index (CPI) and the core CPI both rose 0.4% on a monthly basis, the Bureau of Labor Statistics reported. These readings came in above analysts' estimates and the probability of the Fed holding the policy rate unchanged in June surged beyond 80% from 40% before inflation data, according to the CME FedWatch Tool.

Euro price this week

The table below shows the percentage change of Euro (EUR) against listed major currencies this week. Euro was the weakest against the US Dollar.

	USD	EUR	GBP	CAD	AUD	JPY	NZD	CHF
USD		0.80%	0.48%	0.54%	0.62%	0.93%	0.21%	1.13%
EUR	-0.80%		-0.31%	-0.27%	-0.17%	0.14%	-0.58%	0.34%
GBP	-0.48%	0.33%		0.06%	0.15%	0.46%	-0.26%	0.66%
CAD	-0.54%	0.26%	-0.07%		0.07%	0.41%	-0.31%	0.60%
AUD	-0.62%	0.18%	-0.15%	-0.10%		0.30%	-0.42%	0.49%
JPY	-0.94%	-0.13%	-0.44%	-0.40%	-0.32%		-0.73%	0.21%
NZD	-0.21%	0.58%	0.26%	0.31%	0.41%	0.71%		0.91%
CHF	-1.14%	-0.34%	-0.66%	-0.60%	-0.51%	-0.20%	-0.93%

The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the Euro from the left column and move along the horizontal line to the Japanese Yen, the percentage change displayed in the box will represent EUR (base)/JPY (quote).

On Thursday, the ECB is expected to hold key rates unchanged. Several ECB policymakers, including President Christine Lagarde, left the door open to a rate cut in June after the March policy meeting. Although markets are fairly certain that there will be an ECB policy pivot in June, a confirmation could highlight the policy divergence between the Fed and the ECB and force EUR/USD to stay on the back foot.

In case Lagarde adopts a cautious tone regarding the inflation outlook and casts doubt over a reduction in key rates in June, the Euro could erase a portion of Wednesday's losses.

EUR/USD Technical Analysis

The Relative Strength Index (RSI) indicator on the 4-hour chart stays below 30, pointing to oversold conditions. Investors, however, could ignore this development when reacting to the ECB event.

1.0730 (static level) aligns as interim support before 1.0700 (static level). With a break below the latter, EUR/USD could touch a fresh 2024-low and extend its slide toward 1.0660 (static level from November) next.

On the upside, resistances are located at 1.0770 (static level), 1.0800 (static level) and 1.0820 (100-period Simple Moving Average).

ECB FAQs

What is the ECB and how does it influence the Euro?

The European Central Bank (ECB) in Frankfurt, Germany, is the reserve bank for the Eurozone. The ECB sets interest rates and manages monetary policy for the region. The ECB primary mandate is to maintain price stability, which means keeping inflation at around 2%. Its primary tool for achieving this is by raising or lowering interest rates. Relatively high interest rates will usually result in a stronger Euro and vice versa. The ECB Governing Council makes monetary policy decisions at meetings held eight times a year. Decisions are made by heads of the Eurozone national banks and six permanent members, including the President of the ECB, Christine Lagarde.

What is Quantitative Easing (QE) and how does it affect the Euro?

In extreme situations, the European Central Bank can enact a policy tool called Quantitative Easing. QE is the process by which the ECB prints Euros and uses them to buy assets – usually government or corporate bonds – from banks and other financial institutions. QE usually results in a weaker Euro. QE is a last resort when simply lowering interest rates is unlikely to achieve the objective of price stability. The ECB used it during the Great Financial Crisis in 2009-11, in 2015 when inflation remained stubbornly low, as well as during the covid pandemic.

What is Quantitative tightening (QT) and how does it affect the Euro?

Quantitative tightening (QT) is the reverse of QE. It is undertaken after QE when an economic recovery is underway and inflation starts rising. Whilst in QE the European Central Bank (ECB) purchases government and corporate bonds from financial institutions to provide them with liquidity, in QT the ECB stops buying more bonds, and stops reinvesting the principal maturing on the bonds it already holds. It is usually positive (or bullish) for the Euro.

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