- Investors are stuck in a difficult situation despite the positive employment-related data from the United States.
- March saw a significant decline in eurozone inflation, paving the way for an ECB rate decrease in June.
- Despite the recent upswing, the EUR/USD pair is technically bearish, with 1.0694 in sight.
The US Dollar started the week stronger but lost steam and began to decline, which helped EUR/USD bounce back from a low of 1.0724, which was more than a month ago. The US dollar saw widespread weakening due to the decreasing likelihood of a rate decrease in the US, which led to the surge.
Chairman of the Federal Reserve (Fed), Jerome Powell, stated last Friday that policymakers are not in a rush to lower interest rates due to the economy’s resiliency and inflation remaining over the central bank’s target. Many Fed policymakers boarded the same train this week, dashed expectations of a loosening of monetary policy. Consequently, EUR/USD bounced back to 1.0875.
The final estimates of the March Services and Composite Producing Managers Index (PMI) from Hamburg Commercial Bank (HCOB) and S&P Global, which shocked with a significant change in the services sector’s trajectory, gave the Euro boost in the meantime. In February, the HCOB Germany Services PMI was 48.3, but it rose to 50.1 in March, and the Eurozone index was 51.5.
Ahead of the weekly close, the pair shifted once more in response to better-than-expected US employment-related statistics. The private sector added 184K new jobs in March, according to the ADP poll on private job creation, which was released midweek. At last, the Nonfarm Payrolls (NFP) released on Friday revealed that the economy had created 303K new jobs, substantially more than the 200K forecast. In addition, the unemployment rate decreased from 3.9% to 3.8%. In conclusion, the average hourly earnings increased by 0.3% during the month and by 4.1% over the previous year. The strong employment statistics caused unease among investors.On the one hand, it suggests that the US economy continues to expand at a robust rate, translating into more incomes and profits. Conversely, it bolsters the Fed’s argument for maintaining rates at the apex of the cycle. In addition to decreasing inflation, US policymakers have consistently stated that a looser labor market would be a requirement for rate decreases.
While inconsistent, other US data was generally positive. After declining for sixteen months, the ISM Manufacturing PMI rebounded to 50.3 in March from 47.8 the prior month. On the other hand, the Services PMI decreased from 52.6 to 51.4, which was below estimates but still showed expansion.
In contrast, the EU announced that the annual HICP increased to 2.4% during the same period, and Germany revealed that the Harmonized Index of Consumer Prices (HICP) increased 2.3% YoY in March, based on preliminary estimates. The data softened from March’s and came in below market estimates, supporting the argument for European interest rate reduction.
US inflation and the European Central Bank
The US March Consumer Price Index (CPI) will be highlighted on the macroeconomic calendar the following week. To complete the picture of March’s inflation, the nation will also release the Producer Price Index (PPI).
The monetary policy decision made by the European Central Bank (ECB) is notable throughout the Old Continent. As market participants speculate about whether the ECB may act before the Fed, President Christine Lagarde and her fellow policymakers have been laying the groundwork for a June raise. The European Central Bank (ECB) is anticipated to hold interest rates steady in April as it gets the markets ready for a cut in a few months.
EUR/USD technical outlook
For the second week in a row, the EUR/USD pair struggles to hold onto the 1.0800 barrier and shows little movement. The technical picture over the long run tilts the risk lower. The pair encountered sellers at a flat 20 Simple Moving Average (SMA) on the weekly chart, which offered dynamic resistance at 1.0870. The longer moving averages show no discernible trend either; the only dynamic support is found at 1.0626, where the 100 SMA is located below the current level. Meanwhile, technical indications continue to be negative but with a tempered strength of decline.
Technical indications on the daily chart indicate that bears are still in power. The majority of the past week saw the EUR/USD pair trade below all of its moving averages, with sellers being drawn in during a brief surge into a bearish 20 SMA. Simultaneously, technical indications started to move south, indicating that there would be another leg lower in the following days, unable to cross their midlines.
A break below 1.0770 reveals a crucial support level at 1.0694, the monthly low for February. Additional descents beneath the latter place 1.0600 in view. In the event that the pair makes a comeback, it would have to surpass the 1.0870 mark in order to continue gaining ground, first toward 1.0940 and then into 1.1000.