Euro continues to face pressure against the USD with the EUR/USD trading below 1.0800 as of Monday morning in Europe. The currency pair’s technical outlook doesn’t indicate any signs of a potential recovery, reinforcing the bearish trend. This comes after the EUR/USD fell sharply in the latter half of Friday, ending the week on a negative note.
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A key bearish trend line has formed with resistance near 1.0875, suggesting the possibility of an even lower downturn. As long as the resistance at 1.0810 remains intact, there is a high risk of breaking below 1.0745. Market participants are advised to sell with a target and take profit levels at 1.0745 and 1.0720 respectively, with a risk level of 2% per trade on an intraday basis.
Persistent USD Strength Keeps EUR/USD Under Pressure
As European markets start trading on Monday, the EUR/USD pair remains subdued, trading below the 1.0800 mark. Its technical outlook offers little hope for an imminent recovery, with the USD retaining its strong footing.
Friday’s Upbeat Jobs Data Boosts USD, Dampens Rate Cut Expectations
The EUR/USD took a significant hit in the latter half of Friday, ending the week on a negative note. This was primarily due to U.S. Nonfarm Payrolls data revealing a significant surge of 353,000 jobs in January, far exceeding the anticipated 180,000. This performance led to substantial gains for the USD against its main competitors. Concurrently, expectations for a Federal Reserve rate cut in March dropped from 30% to around 15%.
Powell Reiterates Cautious Stance on Rate Cuts
Fed Chairman Jerome Powell reiterated his cautious stance on rate cuts during a recent interview with CBS News’ 60 Minutes. He stressed that the March meeting may be too premature to confidently initiate rate cuts.
Investors Look Forward to ISM Services PMI Report
The ISM Services PMI report for January is set to feature prominently in today’s U.S. economic agenda. The headline PMI is projected to rise to 52.0 from December’s 50.6. A reading below 50 could negatively impact the USD initially, but persistent USD weakness is unlikely given the recent impressive labor market report.
Powell On Track For Rate Cuts
Chair Jerome Powell recently revealed in a CBS “60 Minutes” interview that the Federal Reserve is planning to reduce interest rates three times this year, with the first cut potentially as early as May. Powell emphasized the strength of the nation’s job market and economy, stating, “I do think the economy is in a good place… there’s every reason to think it can get better.”
Interest Rates Steady Amid Inflation Battle
During a recent news conference, Powell reiterated that the Fed’s key interest rate remains steady at about 5.4%, a 22-year high. This follows a series of 11 increases since March, aimed at combating inflation. However, the upcoming meeting in March is deemed too soon for a rate cut, with most economists predicting the first reduction in May or June.
Impact of Rate Cuts on Consumer and Business Borrowing
The planned rate cuts come as inflation cools off. Powell acknowledged that nearly all 19 members of the Fed’s policy-setting committee agree that these cuts will be beneficial this year. A decrease in the central bank’s key rate would help reduce the cost of mortgages, auto loans, credit cards, and other forms of consumer and business borrowing.
Looking Back at Inflation Surges and Misjudgments
Powell traced the inflation surge of 2021-2022 back to the pandemic’s disruptions, including a shift in spending from services to goods and global factory shutdowns or slowdowns. He admitted the Fed misjudged the duration of the resulting inflation, which it assumed would be short-lived. “So in hindsight, it would’ve been better to have tightened policy earlier,” Powell conceded.
Moving Forward: Continued Monitoring of Inflation
Powell stressed that while rate cuts are likely this year, the Fed wants more evidence that inflation is under control. He emphasized the strength of the U.S. economy and noted that inflation had slowed without a significant rise in unemployment or weak growth. “We’ve got six months of good inflation data and an expectation that there’s more to come… This is a good situation. Let’s be honest. This is a good economy,” Powell stated.
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