EURUSD Exchange Rate in Play with Central Banks

The EURUSD exchange rate could see some volatility with central bank activity. 

EURUSD – Daily Chart

EURUSD – Daily Chart 

EURUSD has tested the 1.0720 support level as expected. The coming sessions will determine whether a low has been made or we see further lows. 

EURUSD may be range trading on Wednesday ahead of Eurozone inflation figures and US ISM services PMI numbers.  

FX analysts at Danske Bank see potential for the Euro-Dollar exchange rate to strengthen to 1.10 on a 2-month view but may weaken to 1.05 over 12 months. With hawkish Federal Reserve comments, ING analysts see scope for near-term EUR/USD losses. Federal Reserve Governor Chris Waller adopted a hawkish stance in comments last week. According to Waller, the Fed will need to see at least two months of data to be sure that inflation is heading to 2% and that more progress is necessary before supporting a rate cut. 

Danske still expects the Fed to backtrack as the economy deteriorates; “We expect the current disinflationary trend will allow the Fed to cut earlier than market expectations in May, followed by two more quarterly cuts during the year. In the near term, we think the potential for an early Fed cut poses an upside risk to the cross, and perhaps markets have also become too optimistic on US exceptionalism and too pessimistic on economic data from the euro area and China”. 

“Strategically, we maintain our USD-positive bias, however, as the structural growth case seems significantly stronger relative to the rest of the world.” 

ING analysts said, “Better activity data and sticky prices have supported US rates and the dollar through the early months of the year.” 

However, the Fed’s efforts to cut rates over the year have some analysts expecting a weaker dollar. French bank Credit Agricole expects the Fed and the ECB to start cutting rates in 2024. It added that the Euro is “to be one of the worst performing currencies in 2024 on the back of the ECB’s more dovish policy stance and persistent concerns about the Eurozone outlook.” 

Goldman Sachs analysts said: “For now, we maintain our view that the clearest path to sustained Dollar depreciation would be from cyclical outperformance abroad that coincides with US inflation relief. But, there are plenty of bumps on that road.” 

EURUSD should see some important movement this week as it trades near a critical support level.

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