EUR/USD Forecast: US Dollar surges after the first round of central banks’ decisions

EUR/USD Current price: 1.0855

• The German ZEW Survey showed Economic Sentiment improved more than anticipated in March.
• The US Dollar rallied following the announcements of the Reserve Bank of Australia and the Bank of Japan.
• EUR/USD battles around 1.0850 with an increased bearish potential.

The EUR/USD pair fell to 1.0834 on Tuesday as the US Dollar gathered momentum following a busy Asian session. The Reserve Bank of Australia (RBA) and the Bank of Japan (BoJ) announced their monetary policy decisions.

The RBA held the Cash Rate at 4.35% for the third consecutive meeting, as policymakers acknowledged that, despite easing, inflation remains high.   The latest monthly inflation data from the Australian Bureau of Statistics (ABS) came in at 3.4% YoY in January, slightly above the upper end of the 2%-3% RBA’s goal range.

As for the BoJ, the central bank ended its ultra-loose monetary policy by hiking rates for the first time since 2007. Japanese policymakers adopted a floating range of 0.0%-0.1% and dropped the Yield Curve Control (YCC) policy. Despite the measures, the Yen fell amid a generally dovish stance from Japanese policymakers. Governor Kazuo Ueda noted there is still a chance the inflation goal will not be hit. Furthermore, the central bank pledged to keep buying long-term Japanese Government Bonds (JGB).

As a result, government bonds rose, pressuring yields. Ahead of Wall Street’s opening, the 10-year Treasury note offers 4.32%, while the 2-year note yields 4.71%, both marginally lower in the day.

Yields are also pressured by the upcoming Federal Reserve (Fed) monetary policy announcement. The Fed will reveal its decision on Wednesday, largely anticipated to keep rates on hold. The focus will then be on the path ahead, as the Fed will also unveil a fresh Summary of Economic Projections (SEP) or dot plot, in which policymakers share their prospects on economic developments and potential rate changes. The December SEP indicated three potential rate cuts for 2024, yet at the time, market players fear it could be reduced to just two.

Data-wise, Germany published the March ZEW Survey, which showed Economic Sentiment improved in the country to 31.7, while the Eurozone one surged to 33.5, beating expectations. Additionally, the assessment of the current situation in Germany improved to -80.5 from -81.7 in the previous month.  Across the pond, the United States (US) released February Housing Starts, which rose 10.7% MoM, and Building Permits, up 1.9% in the same period.

EUR/USD short-term technical outlook

From a technical point of view, the EUR/USD pair is poised to extend its decline. The pair is down for a second consecutive day, hovering around 1.0850. Technical readings in the daily chart show indicators are crossing their midlines into negative territory, falling short of confirming an upcoming decline but, anyway, skewing the risk to the downside. Additionally, the pair broke below a now flat 20 Simple Moving Average (SMA), which converges with the 38.2% Fibonacci retracement of the latest daily slump between 1.1139 and 1.0694 at 1.0865. Finally, mild buying interest defended the downside around a flat 200 SMA. A break below the latter should open the door for additional selling.

The 4-hour chart shows technical indicators remain within negative levels. The Momentum indicator aims higher below the 100 mark, while the Relative Strength Index (RSI) indicator barely bounced from oversold readings, suggesting a limited bullish potential. At the same time, the pair develops well below its 20 and 100 SMAs, with the shorter one about to cross the longer to the downside, in line with resurgent selling interest.

Support levels: 1.0835 1.0790 1.0745

Resistance levels: 1.0865 1.0920 1.0970