Weekly EurUsd Outlook for April 1, 2024 – Navigating Uncertainty with Interest Rates and Currency Pressures

Market Limbo and Interest Rate Speculations Amid Global Events

In a week somewhat devoid of notable U.S. macroeconomic data, attention has shifted to extramarket news such as Trump’s trial and the Baltimore bridge collapse over economic indicators. Federal Reserve Chairman Jerome Powell has also fueled speculation about the trajectory of interest rates, suggesting that they will not revert to pre-pandemic levels and that they will not decrease quickly in this economic cycle unless inflation aligns with the desired 2% target. U.S. ten-year rates have entered a sort of limbo, awaiting further macroeconomic data, while stock markets listlessly hover near record highs without significant corrections.

Powell has silenced speculation with a rhetoric that spans a wide range of possibilities, except for future rate hikes. The dollar, however, has strengthened, buoyed by the outlook in the Eurozone, and has reached its highest level against the yen since 1990, forcing the Japanese government and central bank into an emergency meeting likely preceding forex market intervention to support the yen. The euro is also weak.

However, it is in Europe where the market anticipates rate cuts as soon as June, followed by two more adjustments of 25 basis points each by December. The steady slowdown in inflation, also reflected in preliminary data, and a weak economy are increasing pressure on the ECB to lower borrowing costs.

Technical Analysis: EurUsd Stability and the 200-Day Moving Average Challenge

The lack of dominant trends in the market is also evident from the EurUsd Adx indicator, which has been unable to rise above 30, thus failing to confirm the presence of a bullish trend attempting to “escape” from the 200-day moving average. The euro has stopped its upward momentum, and the Adx is dimming. This phase, therefore, does not seem conducive to activating momentum setups until prices manage to break through supports (1.08) and resistances (1.105). However, supports have come under pressure in the pre-Easter closure. A critical moment.

As mentioned at the beginning, there are few novelties to report in this market phase, with EurUsd calmly continuing to float around the 200-day moving average. The 1.08 area continues to serve as the dividing line between a sideways phase and a bearish phase. Oscillators in neutral territory and sentiment that does not show signs of excess confirm a market uncertain about its direction, ambiguously moving between the temptation to buy dollars on the back of a widening interest rate differential and waiting for more timely measures from the Fed. We believe that only the certainty of no rate cuts by the Fed this year would support the hypothesis of a summer dollar rally, a scenario that Powell’s words seem to be testing once again.