EUR/USD analysis: What’s next after a volatile week for US dollar?

• EUR/USD analysis: Why has the dollar rebounded, and can the gains hold?
• Ifo index improves more than expected – start of positive trend for German data?
• EUR/USD technical analysis hardly shows any major bullish signs yet

EUR/USD analysis: Ifo index improves more than expected

The EUR/USD fell below the 200-day moving average on Friday following Thursday's disappointing manufacturing PMIs out of eurozone, which further increased the probability of a rate cut from the European Central Bank in June. But on Friday, we also had a stronger than expected German Ifo survey which came in at 87.8 compared to 85.9 points expected this was the highest reading in 10 months. Nevertheless, the euro remained under pressure as the dollar found further support following Thursday’s reversal. Still, following a rather harrowing year for the German economy in 2023, each positive data point from here on ought to be celebrated by euro traders. The Ifo index stands is a positive development, albeit much more is requisite to elevate the economy from its current nadir to a state of recovery.

EUR/USD analysis: Why has the dollar rebounded, and can the gains hold?

Although the Fed was dovish, the US dollar rose even as the FOMC maintained its projections of 3 rate cuts this year. It found support in part because of even more dovish external factors, such as the surprise rate cut by the Swiss National Bank, and dovish policy holds from the Bank of England, and Reserve Bank of Australia. The drops in the pound, Aussie dollar and euro have all helped to bolster the dollar's recent ascent, alongside positive US economic indicators, such as the latest PMIs, existing home sales, and unemployment claims. However, these macro releases are unlikely to dissuade the Fed from considering rate cuts in June, particularly if inflation remains subdued.

Following recent volatility sparked by major macroeconomic releases and central bank meetings, the economic calendar for the week ahead appears relatively subdued. However, attention will turn to the Fed's preferred inflation gauge (i.e., Core PCE Price Index) on Friday, followed by the Non-Farm Payrolls (NFP) report and Consumer Price Index (CPI) data in subsequent weeks. The March US data set for release in early April holds considerable sway over the dollar's trajectory. Weakness in these figures, particularly forthcoming inflation data, could precipitate a sustained decline in the dollar.

So far however, the EUR/USD is yet to catch any sustainable bids, as you will see in the chart below.

EUR/USD technical analysis

Source: TradingView.com

The EUR/USD is stuck inside a consolidation range between 1.0700 on the downside to around 1.0950 on the upside. It has spent the last three or four months within this area without moving significantly away from it. What the bulls need to see is a break above the bearish trend line which comes in at around 1.0925 to 1.0950 area, for if that happens the EUR/USD will have also broken back above its 200 day moving average again and created another higher low.

On the downside, 1.0795 is now in sight, the most recent low that was formed at the end of last month. Ideally, the bulls will not want to see price go back below this level now. However, a clean break below this level could potentially pave the way for a larger drop towards the lower end of the abovementioned support area, at 1.0700.

-- Written by Fawad Razaqzada, Market Analyst

Follow Fawad on Twitter @Trader_F_R

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