EUR/USD Forecast: Optimism likely to limit US Dollar gains

EUR/USD Current price: 1.0908

• The European HCOB March PMIs showed the region is still struggling to expand.
• United States data beat expectations, aligning with the country’s resilient growth.
• EUR/USD eased from fresh highs, but the bearish potential remains limited.

The EUR/USD pair retreated from a fresh weekly high of 1.0942 but holds above the 1.0900 mark on Thursday, as the US Dollar took a hit from the Federal Reserve (Fed) monetary policy announcement. The United States (US) central bank kept rates unchanged as expected and maintained the idea of three possible rate cuts for this year. However, policymakers upwardly reviewed growth and inflation forecasts, suggesting they are in no rush to trim interest rates.

Meanwhile, the Euro fell in the European session following the release of the Hamburg Commercial Bank (HCOB) flash Producer Manager Indexes (PMIs) estimates. The report showed that the economic downturn eased modestly in March, although economies remain in contraction territory. The German Services PMI improved from 48.3 in February to 49.8 in March. Moreover, the uptick in business confidence, reaching a near one-year zenith, suggests that firms are anticipating a more favourable economic environment ahead.

On the other hand, the persistent decline in factory production resulted in the manufacturing index contracting further,  to 41.6 from 42.5. That left the headline HCOB Flash Germany Composite PMI Output Index at  47.4, a three-month high. Meanwhile, the HCOB Eurozone indexes posted a similar picture, with an improvement in the services sector offsetting  a decline in the manufacturing sector. The EU Composite PMI printed at 49.9, higher than the previous 49.2 and just below the 50 line indicating economic expansion.

Across the pond, the US reported that Initial Jobless Claims for the week ended March 15 declined to 210K, beating expectations. Also, the Philadelphia Fed Manufacturing Survey printed at 3.2 in March, below the previous 5.2 but better than the expected -2.3. Later in the American session, S&P Global will publish the preliminary estimates of the March PMIs, foreseen to be slightly below February final readings but holding in expansion territory.

EUR/USD short-term technical outlook

The EUR/USD pair trades in the 1.0910 region, and the daily chart shows it hovers around its opening level. Additionally, the pair remains above all its moving averages, with the 20 Simple Moving Average (SMA) gaining upward traction above the longer ones. At the same time, EUR/USD is battling with the 50% Fibonacci retracement of the 1.1139/1.0694 slide at 1.0917. Technical indicators, however, turned south within positive levels, suggesting buying interest is still cautious.

The 4-hour chart shows EUR/USD also developing above all its moving averages, which remain directionless anyway. Finally, technical indicators retreat from near overbought levels but hold above their midlines. With markets mostly optimistic, the US Dollar has little room to extend gains in the upcoming sessions. The main support level is 1.0865, the 38.2% retracement of the aforementioned rally.

Support levels: 1.0865 1.0830 1.0790  

Resistance levels: 1.0920 1.0970 1.1010