12 Apr, 2024
The euro weakened against the U.S. dollar and British pound on Thursday after the European Central Bank embraced a dovish posture during its April meeting. When it was all said and done, EUR/USD dropped by 0.2%, closing the session at 1.0725. EUR/GBP also retreated, falling 0.3% and breaching its 50-day simple moving average to settle at 0.8542.
To provide some color, the ECB left its policy settings unchanged at the end of its last meeting, but unambiguously indicated that a shift to a looser stance is imminent amid increased confidence in the disinflation process. This guidance led traders to increase bets that the first rate cut of the central bank’s easing cycle will come in June.
The fact that the ECB is expected to ease before the Fed should be bearish EUR/ USD in the near term. A few weeks ago, the Fed was also seen launching its easing cycle in June, but hotter-than-anticipated inflation readings, coupled with robust labor market data, have diminished the likelihood of this scenario, sparking a hawkish repricing of interest rate expectations that has been a tailwind for the greenback.
The euro may also struggle against sterling on account of monetary policy divergence. Although the Bank of England is also on track to start lowering borrowing costs later this year, the institution led by Andrew Bailey is not likely to pull the trigger until August. Moreover, market pricing points to only 50 basis point easing from the BoE compared to the 75 basis points expected from the ECB.
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EUR/USD FORECAST – TECHNICAL ANALYSIS
After a steep sell-off on Wednesday, EUR/USD extended losses on Thursday, hitting its lowest mark in two months at one point during the trading session, before making a partial recovery. Should losses regain impetus in the coming days, support appears near February’s lows at 1.0695. Below this threshold, all eyes will be on 1.0640, followed by 1.0450.
On the flip side, if selling pressure eases and sentiment towards the euro improves, we could potentially see a bullish reversal off current levels. In such a scenario, buyers could propel prices towards the 50-day and 200-day simple moving average located around 1.0825. On further strength, the focus will be on 1.0865, the 50% Fib retracement of the 2023 slump.
EUR/USD PRICE ACTION CHART
EUR/USD Chart Created Using TradingView
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| Change in | Longs | Shorts | OI |
| Daily | 7% | 0% | 4% |
| Weekly | -14% | 23% | -3% |
EUR/GBP FORECAST – TECHNICAL ANALYSIS
EUR/GBP rallied earlier in the month but began to retrace after facing rejection at trendline resistance at 0.8585, with losses accelerating and prices breaking below the 50-day simple moving average on Thursday. If weakness persists, support emerges at 0.8285. Bulls must resolutely defend this technical floor; a failure to do so might result in a descent towards the 2023 lows.
Conversely, if EUR/GBP mounts a comeback, the first hurdle in its path to recovery will be the 50-day simple moving average, positioned near 0.8550. Beyond this resistance, attention will turn to a descending trendline spanning five months at 0.8575. Bulls may find it challenging to take out this barrier, but a breakout could trigger a move towards the 200-day simple moving,
EUR/GBP PRICE ACTION CHART
