EUR/USD Forecast: The 200-day SMA holds the downside…for now

The new trading week for EUR/USD began with indecision amidst the equally vacillating price action surrounding the greenback, while scarce volatility also added to an uneventful Monday.

While market participants have already factored in approximately 120 bps in rate cuts for the current year, there seems to be a growing debate between market participants and the ECB's rate-setters regarding the timing of the central bank's decision to start reducing the region's policy rate.

Despite inflation running well above the bank's target, European policymakers seem inclined to maintain a restrictive stance, although the weak fundamentals in the bloc appear to curtail any upside potential for the European currency.

On the other side of the Atlantic, investors are assigning just over 40% probability to a reduction in the Fed's FFTR at the March 20 meeting, according to the FedWatch Tool tracked by CME Group.

EUR/USD daily chart

EUR/USD short-term technical outlook

If the EUR/USD falls further and breaches the 2024 low of 1.0844 (January 17), it might make touch with the December 2023 low of 1.0723 (December 8) before the weekly low of 1.0495 (October 13, 2023), followed by the October 2023 low of 1.0448 (October 3) and the round level of 1.0400. The pair's bullish outlook is expected to be challenged below its 200-day SMA, today at 1.0845.

The 4-hour chart indicates that the consolidative attitude in spot is likely to persist. In the event of a break above this theme, the first resistance level is around the 200-SMA at 1.0919 prior the 100-SMA at 1.0943 ahead of 1.0998. The MACD has recovered somewhat, and the RSI retreated to the 46 zone. On the downside, immediate contention emerges at 1.0844 prior to 1.0723.

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