- On Wednesday, the yen plunged to a 38-year low.
- Investors remained cautious ahead of the French elections.
- Policymakers remain confident that Eurozone inflation will reach the 2% target.
The EUR/USD outlook is bearish as the dollar holds near recent peaks driven by a decline in the yen. Meanwhile, ECB policymakers and experts increased market confidence that Eurozone inflation will reach the central bank’s target.
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On Wednesday, the yen plunged to a 38-year low as investors focused on the interest rate differential between the US and Japan. This allowed the dollar to strengthen against its peers. This rally came ahead of GDP and inflation data from the US that might give more clues on the Fed’s rate cut outlook.
The PCE price index report, due on Friday, will significantly shape the outlook for Fed interest rates. If inflation eases as expected, rate-cut bets will increase, and the dollar might pull back. Moreover, investors might assume a more dovish tone with more confidence in the inflation downtrend.
On the other hand, investors remained cautious ahead of the French elections. Political uncertainty since Macron’s snap election announcement has weighed on the euro. A radical shift in the government could mean fiscal policy changes that might cause a financial crisis. That risk will remain until the elections are done.
Meanwhile, policymakers remain confident that Eurozone inflation will reach the 2% target. ECB’s Olli Rehn said on Wednesday that data showed inflation would reach the central bank’s target. At the same time, experts are planning to advise the ECB to continue cutting rates, which would weaken the euro. Markets currently price 68bps of ECB rate cuts this year.
EUR/USD key events today
- US final GDP q/q
- US jobless claims
EUR/USD technical outlook: Price reaches 1.0680 level for the third retest
On the technical side, the EUR/USD price has fallen to retest the 1.0680 support level a third time. At the same time, it has pulled back to retest the recently broken channel resistance line. Moreover, the price is back below the 30-SMA with the RSI in bearish territory, supporting a bearish bias.
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However, the RSI still shows a bullish divergence that could lead to a bullish reversal. The RSI divergence indicates weaker bearish momentum, meaning the price might fail to break below 1.0680. If this happens, bulls might break above the SMA to target the 1.0800 resistance level.
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Saqib Iqbal
