EUR/USD Forecast: Extra gains appear in the pipeline near term

Yet another significant decline in the US Dollar (USD) spurred a robust upward movement in EUR/USD, this time revisiting the 1.0870-1.0880 band on Thursday, an area coincident with the transitory 100-day SMA.

Meanwhile, the movement in the pair was accompanied by vacillating developments in US yields across various maturity periods, while German 10-year bund yields added to Wednesday’s retracement against the backdrop of an unchanged monetary policy framework.

On the latter, both the Federal Reserve (Fed) and the European Central Bank (ECB) are anticipated to initiate easing cycles, potentially commencing in June. However, the pace of subsequent interest rate reductions may vary, potentially leading to differing strategies between the two central banks. Nonetheless, it is expected that the ECB will not significantly lag behind the Fed.

Around the Fed, Chicago Federal Reserve Bank President Austan Goolsbee remarked on Thursday that the most significant obstacle hindering the bank’s efforts to restore inflation to its 2% target rate is the enduring prevalence of substantial price hikes within the housing services sector.

According to the FedWatch Tool provided by CME Group, the probability of a rate cut in June remained around 61%.

Regarding the ECB, the Accounts from its March 6-7 meeting unveiled a rising sense of confidence among policymakers regarding the trajectory of inflation towards their 2% target. This strengthened the case for implementing interest rate cuts.

Looking forward, the relatively subdued fundamentals of the eurozone, coupled with the increasing likelihood of a "soft landing" for the US economy, reinforce expectations of a stronger Dollar in the medium term, particularly as both the ECB and the Fed may introduce easing measures nearly simultaneously. In such a scenario, EUR/USD could experience a more pronounced decline, initially targeting its year-to-date low around 1.0700 before potentially revisiting the lows observed in late October 2023 or early November below 1.0500.

EUR/USD daily chart

EUR/USD short-term technical outlook

On the upside, EUR/USD is projected to encounter initial resistance at March high of 1.0981 (March 8), seconded by the weekly top of 1.0998 (January 11), and the psychological barrier of 1.1000. Further gains from here might lead to a December 2023 peak of 1.1139 (December 28).

On the downside, another test of the April low of 1.0724 (April 2), as well as the 2024 low of 1.0694 (February 14), is not ruled out. The low for November 2023 is 1.0516 (November 1), followed by the weekly low of 1.0495 (October 13, 2023), the 2023 bottom of 1.0448 (October 3), and the round milestone of 1.0400.

The 4-hour chart shows a significant rebound from recent lows around 1.0720. The initial level of resistance is 1.0876, prior to 1.0942. In the other direction, the next obvious downward barrier appears to be 1.0724, followed by 1.0694 and 1.0656. The Moving Average Convergence Divergence (MACD) rose to the positive territory, while the Relative Strength Index (RSI) looked stable around 70.