- EUR/USD maintained its consolidative theme around 1.0700.
- The US Dollar alternated gains with losses post Fed’s rate decision.
- The upcoming NFP should add to speculations around the timing of rate cuts.
The US Dollar’s (USD) inconclusive price action sparked an equally vacillating move in EUR/USD on Thursday, always surrounding the 1.0700 neighbourhood.
This irresolute momentum of the Greenback came pari passu investors’ assessment of the latest Federal Reserve's (Fed) decision to maintain its interest rates unchanged at 5.25%-5.50% on Wednesday.
In that event, it is worth recalling that the Committee reaffirmed its stance on the Fed Funds Target Range (FFTR) at 5.25%–5.50%, expressing intentions for rate cuts but expressing concerns about inflation and potential disruptions in economic equilibrium. Additionally, the central bank announced intentions to slow down the pace of balance sheet reduction, contrasting with previous warnings.
In addition, Chair Jerome Powell's remarks further weighed on the Dollar, as he argued that the next policy adjustment is unlikely to involve a rate hike.
In the longer term, weakness in the US Dollar is expected to be temporary due to delayed expectations of a potential interest rate cut by the Federal Reserve (Fed) later this year.
Meanwhile, US yields maintained their decline, while the broader macroeconomic landscape kept pointing to the divergence in monetary policies between the Fed and other G10 central banks, particularly the European Central Bank (ECB).
Recent statements from ECB board members suggested the possibility of the ECB initiating its easing cycle in June, sparking speculation about three interest rate cuts (or 75 basis points) for the remainder of the year.
Looking ahead, the relatively muted economic fundamentals in the Eurozone, along with the resilience of the US economy, reinforce expectations for a stronger Dollar in the medium term, especially considering the increasing likelihood of the ECB cutting rates well before the Fed.
In this context, EUR/USD is anticipated to undergo a more pronounced decline in the medium term.
EUR/USD daily chart
EUR/USD short-term technical outlook
On the upside, EUR/USD is projected to face first resistance at the weekly high of 1.0752 (April 26), which comes before the significant 200-day SMA of 1.0798 and the April top of 1.0885 (April 9). North from here comes the March peak of 1.0981 (March 8), followed by the weekly high of 1.0998 (January 11), all before reaching the psychological barrier of 1.1000.
Looking south, a break of the 2024 low of 1.0601 (April 16) might indicate a return to the November 2023 low of 1.0516 (November 1), which precedes the weekly low of 1.0495 (October 13, 2023). Once this region is achieved, a trip to the 2023 bottom of 1.0448 (October 3) is feasible before achieving the round milestone of 1.0400.
The 4-hour chart indicates some consolidation, with the pair currently targeting 1.0752, ahead of the 200-SMA at 1.0756. Meanwhile, 1.0673 offers early support, ahead of 1.0601 and 1.0516. The relative strength index (RSI) rose past 52.
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