- The European Central Bank has maintained its hawkish stance.
- Powell signaled on Wednesday that the era of monetary policy tightening is likely over.
- Markets are currently pricing in a 75% chance the Fed will cut rates in March.
The outlook for EUR/USD is bullish on Friday as the currency rallied, buoyed by the European Central Bank’s unwavering commitment to a hawkish stance. In a surprise reversal on Thursday, the ECB backed away from an expected rate cut. Furthermore, policymakers reaffirmed their commitment to fighting inflation, contributing to the strengthening of the currency.
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However, investor expectations remain unchanged despite this stance, with interest rate cuts still priced in for next year. Pepperstone’s Weston suggested the ECB was in a better position to cut rates given low growth and rapidly falling inflation.
Meanwhile, there is more clarity on the timing of a potential rate cut in the US. Federal Reserve Chairman Jerome Powell signaled on Wednesday that the era of monetary policy tightening is likely over. In addition, discussions about the cuts are now coming “in the open”. Consequently, the dollar fell, with the dollar index hovering near a four-month low on Thursday. The dollar fell nearly 2% and is headed for its biggest weekly drop since July.
Moreover, the Fed’s projected tapering for 2024 has been pushed back, with a growing number of investors now expecting the cuts to begin around March. Markets are currently pricing in a 75% chance the Fed will cut rates in March.
EUR/USD key events today
- German Flash Manufacturing PMI
- German Flash Services PMI
- Empire State Index of Production
- US Flash Manufacturing PMI
- US Flash Services PMI
EUR/USD Technical Outlook: Bulls hit historic reversal zone
The bullish bias for EUR/USD is strong as the price surged to the key resistance level of 1.1000. Consequently, it is trading well above the 30-SMA, showing a steep bullish move. Furthermore, the RSI is in the overbought region, which is the extreme for bullish momentum. The bulls were strong enough to break through multiple resistance levels without a break.
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However, they are currently facing the level that led to the previous trend reversal. Therefore, the price could start to decline from the key level of 1.1000 to retest the lower support levels. A pullback could fall to the 0.382 Fib retracement level before the uptrend resumes.
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