EUR/USD Forecast: A bounce just in time, before the Fed and the ECB
|- Euro outperforms during the American session amid lower US yields.
- Key events ahead include the Fed, ECB, and NFP.
- EUR/USD continues to move sideways after an important rebound.
The EUR/USD rose for the first time in three days, reclaiming 1.1000 and the 20-day Simple Moving Average. The Euro was an outperformer during the American session, boosting the rebound in the pair from 1.0940 to 1.1005 amid risk aversion. Stocks tumbled on Wall Street, favoring the demand for safe-haven assets. The US JOLTS report showed lower-than-expected numbers.
Inflation in the Eurozone edged higher in April, with the Harmonized Index of Consumer Prices (HICP) rising to 7% YoY from 6.9%. The core HICP dropped from 5.7% to 5.6%. These numbers suggest that the European Central Bank (ECB) will raise its interest rates on Thursday. Most analysts see a 25 basis points hike, but they warn about the risks of a 50 bps hike. The Q1 Bank Lending Survey showed that credit standards remained tight during the first quarter, and demand for credit slowed.
On Wednesday, the Eurozone will report the unemployment rate for March, which is expected to remain at 6.6%. Later, ADP will release its US private payrolls report. During the American session, the Federal Reserve (Fed) will announce its decision on monetary policy. A 25 basis points rate hike is priced in. It is seen as the last rate hike of the tightening cycle, although those estimates look a little less conclusive after the unexpected rate hike from the Reserve Bank of Australia (RBA).
What is clear is that volatility across financial markets will remain elevated, favoring large swings, including in EUR/USD. Not even daily closes can be trusted in the current environment because central banks and incoming economic data have the potential to impact significantly.
EUR/USD short-term technical outlook
When the EUR/USD looked poised for a deeper correction, it rebounded sharply from weekly lows below the 1.0950 area, returning to 1.1000 and avoiding a close below the 20-day Simple Moving Average (SMA). A consolidation above 1.1050 could lead to a test of 1.1100.
On the 4-hour chart, technical indicators favor the upside, with the RSI above 50 and sloping upwards. The price is slightly above the 20-period SMA. A dynamic resistance area at 1.1020 is a key level to monitor. If it's broken, the outlook will strengthen, targeting the 1.1050 area. On the downside, consolidation below 1.0965 could expose 1.0950, making the Euro vulnerable to further losses. Strong support emerges around 1.0900/10.
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