EUR/USD Forecast: Further losses remain on the table

• EUR/USD came just pips away from the YTD low in the sub-1.0700 zone.
• The US Dollar extended its gains to new yearly tops.
• The ECB kept rates on hold and signalled a probable cut in June.

EUR/USD remained on the back foot for the third straight session, easing to levels just below 1.0700 the figure and disputing the 2024 lows, always amidst the extra advance in the US Dollar (USD).

In fact, the Dollar's upward momentum came in tandem with investors’ repricing of a later-than-expected rate cut (probably in December), all amidst another uptick in yields in the belly of the curve.

This strong move in the Greenback helped the USD Index (DXY) reach fresh YTD highs and remained propped up by recent higher-than-expected US inflation readings tracked by the CPI in March.

Closer to home, there were no surprises at the European Central Bank (ECB) meeting, where the central bank left its rates unchanged, as widely anticipated, while giving a clearer hint that it may be planning a rate cut, especially as eurozone inflation continues to fall.

At her subsequent press conference, ECB President C. Lagarde emphasised the economy's fragility, citing reducing labour market tightness and lower pricing pressures. She believes inflation will approach target levels next year, with growth risks weighted to the negative. Lagarde underlined that the ECB's choices are unaffected by the Fed's activities and that the bank could take action before inflation meets the 2% objective.

In light of this development, there has been a shift in perception regarding the Federal Reserve (Fed), which is now anticipated to initiate its easing cycle later than previously projected, potentially in the fourth quarter. Concurrently, speculation arises that the ECB might embark on interest rate reductions during the summer months.

Looking forward, the relatively subdued economic fundamentals in the eurozone, coupled with the resilience of the US economy, reinforce the anticipation of a stronger Dollar in the medium term, especially considering the possibility of the ECB reducing rates earlier than the Fed. In such a scenario, EUR/USD is expected to face a more pronounced decline in the short-term horizon.

EUR/USD daily chart

EUR/USD short-term technical outlook

The breach of the important 200-day SMA at 1.0830 opens the door to more losses in the near future. However, the next support level is the 2024 bottom of 1.0694 (February 14). Down from here is the November 2023 low of 1.0516 (November 1), the weekly low of 1.0495 (October 13, 2023), the 2023 bottom of 1.0448 (October 3), and the round milestone of 1.0400.

On the upside, EUR/USD is expected to face initial resistance at the so-far April high of 1.0885 (April 9), seconded by the March top of 1.0981 (March 8) and the weekly peak of 1.0998 (January 11), which precedes the psychological barrier of 1.1000. Further gains from here may test the December 2023 high of 1.1139 (December 28).

The 4-hour chart indicates that the bearish trend seems to have regained traction. That said, the initial support arrives at 1.0694 ahead of 1.0656. In the opposite direction, the 200-SMA is at 1.0848, prior to 1.0885. The Moving Average Convergence Divergence (MACD) dropped to the negative zone, while the Relative Strength Index (RSI) eased to the sub-30 region.