EUR/USD trades with modest intraday losses, downside potential seems limited
- EUR/USD fails to capitalize on this week’s modest recovery from a multi-month low.
- Bets that the ECB will start cutting rates in April cap the upside for the shared currency.
- The USD extends its subdued range-bound price action and lends support to the pair.
The EUR/USD pair continues with its struggle to make it through the 100-day Simple Moving Average (SMA) and attracts some sellers in the vicinity of the 1.0800 mark on Friday. Spot prices remain depressed through the mid-European session and for now, seem to have stalled a three-day-old recovery from a multi-month low touched earlier this week. That said, the recent hawkish remarks by several European Central Bank (ECB) officials and subdued US Dollar (USD) price action should help limit the downside.
The USD extends its sideways consolidative price move below its highest level since November 14 set on Monday as traders seek more clarity about the likely timing and pace of interest rate cuts by the Federal Reserve (Fed) in 2024. Hence, the focus will remain glued to the latest US consumer inflation figures, due for release next week, which will influence the Fed's future policy decision. This, in turn, will drive the sentiment surrounding the USD and provide some meaningful impetus to the EUR/USD pair.
Daily Digest Market Movers: Drifts lower amid Fed uncertainty, ECB rate cut bets
- The European Central Bank officials have been trying hard to temper market expectations for early interest rate cuts and lend some support to the EUR/USD pair amid subdued US Dollar demand.
- Governing Council member Pierre Wunsch said on Thursday that he would prefer to wait for more wage data, which is not compatible with the 2% inflation target, before deciding to cut rates.
- This comes on top of comments by ECB board member Isabel Schnabel on Wednesday, saying that the central bank must be patient with cutting interest rates as inflation could flare up again.
- Adding to this, the ECB's latest economic bulletin stated that the interest rate policy is unlikely to change before June despite the gloomy outlook that the Eurozone economy likely contracted in Q4.
- Expectations for the ECB interest rate cut at the start of the second quarter, however, have been growing stronger, which holds back traders from placing aggressive bullish bets around the shared currency.
- Data released on Thursday showed that US Initial Jobless Claims fell to 218K last week, pointing to a resilient labor market and reaffirming bets that the Federal Reserve will keep rates higher for longer.
- The uncertainty over the Fed rate cut path fails to provide any meaningful impetus to the US Dollar, which remains below a multi-month low and continues to act as a tailwind for the currency pair.
Technical Analysis: Failure near 100-day SMA, ahead of 1.0800 favour bearish traders
From a technical perspective, any subsequent move beyond the 1.0800 mark is likely to meet with a fresh supply near the very important 200-day SMA, currently pegged near the 1.0830-1.0835 region. This should cap spot prices near a resistance marked by a one-month-old descending trend-line, around the 1.0860-1.0865 region. A sustained strength beyond, however, might shift the near-term bias in favor of bullish traders and lift the EUR/USD pair to the 1.0900 round figure. The momentum could get extended further towards the 1.0930 intermediate hurdle en route to the 1.0970-1.0975 region and the 1.1000 psychological mark.
On the flip side, the overnight swing low, around the 1.0740 zone, now seems to protect the immediate downside ahead of the 1.0725-1.0720 area, or a multi-month low touched earlier this week. This is closely followed by the 1.0700 mark, which if broken decisively will be seen as a fresh trigger for bearish traders and make the EUR/USD pair vulnerable. Spot prices might then accelerate the slide further towards the 1.0665-1.0660 support before eventually dropping to the 1.0620-1.0615 region and the 1.0600 round figure.
Euro price today
The table below shows the percentage change of Euro (EUR) against listed major currencies today. Euro was the strongest against the Swiss Franc.
| USD | EUR | GBP | CAD | AUD | JPY | NZD | CHF | |
| USD | 0.05% | 0.06% | -0.01% | -0.16% | 0.07% | -0.63% | 0.22% | |
| EUR | -0.05% | 0.00% | -0.07% | -0.23% | 0.02% | -0.69% | 0.17% | |
| GBP | -0.06% | 0.00% | -0.06% | -0.22% | 0.01% | -0.69% | 0.17% | |
| CAD | 0.01% | 0.06% | 0.07% | -0.16% | 0.07% | -0.62% | 0.23% | |
| AUD | 0.17% | 0.22% | 0.22% | 0.15% | 0.23% | -0.47% | 0.39% | |
| JPY | -0.07% | -0.02% | -0.02% | -0.09% | -0.26% | -0.67% | 0.17% | |
| NZD | 0.63% | 0.68% | 0.68% | 0.61% | 0.45% | 0.69% | 0.84% | |
| CHF | -0.22% | -0.17% | -0.16% | -0.23% | -0.38% | -0.15% | -0.85% |
The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the Euro from the left column and move along the horizontal line to the Japanese Yen, the percentage change displayed in the box will represent EUR (base)/JPY (quote).
ECB FAQs
What is the ECB and how does it influence the Euro?
The European Central Bank (ECB) in Frankfurt, Germany, is the reserve bank for the Eurozone. The ECB sets interest rates and manages monetary policy for the region.
The ECB primary mandate is to maintain price stability, which means keeping inflation at around 2%. Its primary tool for achieving this is by raising or lowering interest rates. Relatively high interest rates will usually result in a stronger Euro and vice versa.
The ECB Governing Council makes monetary policy decisions at meetings held eight times a year. Decisions are made by heads of the Eurozone national banks and six permanent members, including the President of the ECB, Christine Lagarde.
What is Quantitative Easing (QE) and how does it affect the Euro?
In extreme situations, the European Central Bank can enact a policy tool called Quantitative Easing. QE is the process by which the ECB prints Euros and uses them to buy assets – usually government or corporate bonds – from banks and other financial institutions. QE usually results in a weaker Euro.
QE is a last resort when simply lowering interest rates is unlikely to achieve the objective of price stability. The ECB used it during the Great Financial Crisis in 2009-11, in 2015 when inflation remained stubbornly low, as well as during the covid pandemic.
What is Quantitative tightening (QT) and how does it affect the Euro?
Quantitative tightening (QT) is the reverse of QE. It is undertaken after QE when an economic recovery is underway and inflation starts rising. Whilst in QE the European Central Bank (ECB) purchases government and corporate bonds from financial institutions to provide them with liquidity, in QT the ECB stops buying more bonds, and stops reinvesting the principal maturing on the bonds it already holds. It is usually positive (or bullish) for the Euro.
Author
Haresh Menghani
FXStreet
Haresh Menghani is a detail-oriented professional with 10+ years of extensive experience in analysing the global financial markets.
