Euro Forecast: EUR/USD Vulnerable to ECB Rate Cut

Euro Outlook: EUR/USD

EUR/USD may stage further attempts to test the January high (1.0533) ahead of the European Central Bank (ECB) interest rate decision as it snaps the series of lower highs and lows from last week.

Euro Forecast: EUR/USD Vulnerable to ECB Rate Cut

EUR/USD retraces the decline from the February high (1.0529) as the Euro Area Consumer Price Index (CPI) points to sticky inflation, with the headline reading printing at 2.4% in February versus forecasts for a 2.3% reading.

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It remains to be seen if the ECB will respond to the data print as the Governing Council argues that ‘most measures of underlying inflation suggest that inflation will settle at around our target on a sustained basis,’ and the rebound in EUR/USD may turn out to be temporary as the central bank is anticipated to further unwind its restrictive policy.

Euro Area Economic Calendar

The ECB is expected to deliver another 25bp rate-cut in March as the ‘risks to economic growth remain tilted to the downside,’ and the updates coming out of the central bank may drag on the Euro should President Christine Lagarde and Co. keep the door open to implement lower interest rates.

With that said, EUR/USD may track the flattening slope in the 50-Day SMA (1.0391) as it continues to trade within last month’s range, but the exchange rate may establish a new trend should it push above the January high (1.0533).

EUR/USD Chart – Daily

Chart Prepared by David Song, Senior Strategist; EUR/USD on TradingView

• EUR/USD snaps the recent series of lower highs and lows following the failed attempt to close below 1.0370 (38.2% Fibonacci extension), with a breach above the January high (1.0533) opening up the 1.0580 (78.6% Fibonacci extension) to 1.0610 (38.2% Fibonacci retracement) region.
• Next area of interest comes in around the December high (1.0630), but lack of momentum to hold above the 1.0448 (2023 low) to 1.0480 (100% Fibonacci extension) zone may keep EUR/USD within the January range.
• Need a close below 1.0370 (38.2% Fibonacci extension) to bring the February low (1.0211) on the radar, with the next area of interest coming in around the January low (1.0178).

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--- Written by David Song, Senior Strategist

Follow on Twitter at @DavidJSong