EUR/USD Forecast: Dangerously near 1.0500; Euro under pressure on banking concerns, ahead of ECB
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UPGRADE- Market turmoil and Credit Suisse concerns hit the Euro.
- ECB in a difficult position, still expected to raise rates by 50 basis points.
- EUR/USD tumbles toward critical support.
The EUR/USD tumbled on Wednesday from weekly highs to monthly lows in a volatile session amid market turmoil and ahead of the European Central Bank (ECB) meeting. The US Dollar jumped, boosted by risk aversion and ignoring US economic data. Developments regarding the banking sector and contagion fears will likely dominate the upcoming session, so traders should brace for volatility.
The new scenario boosted government bond yields, initially sending the US Dollar to the downside. However, that changed on Wednesday, not only because the crisis crossed the Atlantic but also because risk aversion deepened.
With the Credit Suisse drama going on, the European Central Bank will have its monetary policy meeting on Thursday. A 50 bps rate hike is still expected, but all options are on the table and there will be a debate within the Governing Council, particularly about forward guidance. The financial turmoil will take center stage. The forward guidance will be challenged. Probably, ECB President Christine Lagarde won’t be committed to “significant rate hikes” beyond March. It is not clear what message could help the Euro, that the most likely support could come from a weaker Dollar, which usually appreciates in times of high uncertainty.
Recent events have changed expectations for monetary policy dramatically. Just a few days ago, it was “higher for longer”, and now markets are looking at potential rate cuts in a few months. The Federal Reserve will have its meeting next week. Markets are not hearing from Fed officials because of the blackout period ahead of the meeting. The CME Fedwatch Tool shows the odds of a no rate hike next week surging from 30% to 55%. A week ago, the talk was about 25 or 50 bps.
EUR/USD short-term technical outlook
The sharp decline in EUR/USD hit critical support that includes a key Fibonacci retracement, a crucial horizontal support band and the 100-day Simple Moving Average (SMA), all near the psychological 1.0500 level. A break of that area would point to more weakness ahead, initially to the December low at 1.0480; below, the next strong support is seen at 1.0430. Additionally, EUR/USD dropped below the 20-day SMA and Momentum under the 100 line.
Ahead of the Asian session, the 4-hour chart offers a mixed picture, with most technical indicators favoring the downside, but the RSI is turning to the upside. The EUR/USD could swing up and down while it holds above 1.0500. In the short term, risks are set to remain tilted to the downside while below 1.0635.
- Market turmoil and Credit Suisse concerns hit the Euro.
- ECB in a difficult position, still expected to raise rates by 50 basis points.
- EUR/USD tumbles toward critical support.
The EUR/USD tumbled on Wednesday from weekly highs to monthly lows in a volatile session amid market turmoil and ahead of the European Central Bank (ECB) meeting. The US Dollar jumped, boosted by risk aversion and ignoring US economic data. Developments regarding the banking sector and contagion fears will likely dominate the upcoming session, so traders should brace for volatility.
The new scenario boosted government bond yields, initially sending the US Dollar to the downside. However, that changed on Wednesday, not only because the crisis crossed the Atlantic but also because risk aversion deepened.
With the Credit Suisse drama going on, the European Central Bank will have its monetary policy meeting on Thursday. A 50 bps rate hike is still expected, but all options are on the table and there will be a debate within the Governing Council, particularly about forward guidance. The financial turmoil will take center stage. The forward guidance will be challenged. Probably, ECB President Christine Lagarde won’t be committed to “significant rate hikes” beyond March. It is not clear what message could help the Euro, that the most likely support could come from a weaker Dollar, which usually appreciates in times of high uncertainty.
Recent events have changed expectations for monetary policy dramatically. Just a few days ago, it was “higher for longer”, and now markets are looking at potential rate cuts in a few months. The Federal Reserve will have its meeting next week. Markets are not hearing from Fed officials because of the blackout period ahead of the meeting. The CME Fedwatch Tool shows the odds of a no rate hike next week surging from 30% to 55%. A week ago, the talk was about 25 or 50 bps.
EUR/USD short-term technical outlook
The sharp decline in EUR/USD hit critical support that includes a key Fibonacci retracement, a crucial horizontal support band and the 100-day Simple Moving Average (SMA), all near the psychological 1.0500 level. A break of that area would point to more weakness ahead, initially to the December low at 1.0480; below, the next strong support is seen at 1.0430. Additionally, EUR/USD dropped below the 20-day SMA and Momentum under the 100 line.
Ahead of the Asian session, the 4-hour chart offers a mixed picture, with most technical indicators favoring the downside, but the RSI is turning to the upside. The EUR/USD could swing up and down while it holds above 1.0500. In the short term, risks are set to remain tilted to the downside while below 1.0635.
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