- Minutes from the FOMC meeting showed confidence that inflation is under control.
- There is no clear indication of when the Fed might initiate a rate cut.
- The third consecutive monthly decline in the number of new jobs in the US in November points to a softening of the labor market.
Thursday’s EUR/USD forecast points to a bearish trend as investors reassess their predictions for this year’s Federal Reserve rate cut. Consequently, there is a sense of caution in the markets after a strong rise in risk just last month.
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Minutes from the Fed’s December policy meeting on Wednesday indicated officials’ confidence in easing inflation. However, policymakers still saw the need to keep rates restrictive for some time. However, they expressed concern about the potential negative effects of an “overly restrictive” monetary policy on the economy. Moreover, there was no clear indication of when the Fed might initiate a rate cut.
Christopher Wong, currency strategist at OCBC, noted: “Messages that rates will remain elevated are prompting a second look at the aggressive lowering of market-driven expectations.” Meanwhile, data on Wednesday revealed a further contraction in US manufacturing in December. In addition, the third consecutive monthly decline in the number of new jobs in the US in November points to a softening of the labor market.
Steady signs of a cooling U.S. economy have fueled expectations of a Fed rate cut this year as inflation eases. However, traders remain divided on the timing and extent of central bank easing. Current market prices suggest a roughly 72% chance the Fed will begin a rate cut in March, down from 87% a week ago.
EUR/USD key events today
- German preliminary CPI m/m
- US ADP change in non-farm employment
- US unemployment claims
EUR/USD Technical Forecast: Price action is sinking below the 30-SMA threshold
The bias for EUR/USD is bearish on the charts as the price is now trading on the downside of the 30-SMA. Initially, the price was on the rise, creating higher highs. However, at the reversal point, it was overpriced, and sellers made a bearish candle, which was the first sign of an impending change in sentiment. This change came when the price finally broke below the 30-SMA and the RSI dropped below the key 50 level.
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Currently, sellers have paused near a strong support zone consisting of the key level of 1.0900 and the fib retracement level of 0.618. This support may trigger a pullback to retest the 30-SMA before the decline continues. The next target for the downtrend is support at 1.0750.
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