- On Wednesday, the yen fell to a 38-year low.
- Investors remained cautious ahead of the French elections.
- Policymakers remain confident that inflation in the eurozone will reach the 2% target.
The outlook for EUR/USD is bearish as the dollar holds close to recent highs boosted by a weaker yen. Meanwhile, ECB policymakers and experts boosted market confidence that eurozone inflation will reach the central bank’s target.
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The yen fell to a 38-year low on Wednesday as investors focused on the interest rate differential between the US and Japan. This allowed the dollar to strengthen against its peers. The rise came ahead of US GDP and inflation data that could give more clues about the Fed’s rate cut prospects.
The PCE price index report, due on Friday, will significantly shape the Fed’s interest rate outlook. If inflation eases as expected, rate cut bets will increase and the dollar could retreat. Moreover, investors could assume a more dovish tone with more confidence in the downward trend in inflation.
On the other hand, investors remained cautious ahead of the French elections. Political uncertainty since Macron’s announcement of snap elections has weighed on the euro. A radical change in government could mean changes in fiscal policy that could trigger a financial crisis. That risk will remain until the election.
Meanwhile, policymakers remain confident that eurozone inflation will reach the 2% target. The ECB’s Olli Rehn said on Wednesday that the data showed inflation would reach the central bank’s target. At the same time, experts plan to advise the ECB to continue cutting rates, which would weaken the euro. Markets are currently pricing in a 68 basis point cut in ECB interest rates this year.
EUR/USD key events today
- Final US GDP q/q
- US unemployment claims
Technical Outlook EUR/USD: Price reaches 1.0680 level for third retest
On the technical side, EUR/USD fell to retest the 1.0680 support level for the third time. At the same time, it pulled back to retest the recently broken resistance line of the channel. Furthermore, the price has moved back below the 30-SMA with the RSI in bearish territory, supporting the bearish bias.
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However, the RSI is still showing a bullish divergence that could lead to a bullish reversal. The RSI divergence indicates weaker bearish momentum, which means the price may fail to break below 1.0680. If that happens, the bulls could break above the SMA to target the 1.0800 resistance level.
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