EUR/USD Outlook: Investors Gear Up for Crucial ECB Meeting

• ECB policymakers are acknowledging an eventual rate cut.

• Market analysts foresee five ECB cuts in the coming year.

• J.P. Morgan now expects the ECB to start rate cuts earlier in June.

Monday’s EUR/USD outlook leaned towards a modest bearish stance, with investors positioning themselves ahead of the ECB meeting later this week. As the ECB policy meeting approaches, the discussion has shifted among policymakers, acknowledging an eventual rate cut. Still, they expect it later and to a lesser extent than anticipated by the markets.

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Market analysts challenge the ECB’s inflation outlook, foreseeing five cuts in the coming year. According to NatWest Markets, some believe the balance of risks leans toward a dovish ECB stance.

On Friday, JP Morgan revised its forecast for the ECB to start interest-rate cuts, moving the anticipated start from September to June. However, it maintained a “cautious” stance on inflation and wage growth trends. Moreover, JP Morgan predicts 100 basis points in rate cuts by the year’s end. This is an increase from the last expectation of 75 bps. 

Meanwhile, the dollar struggled to hold its gains. The dollar’s rally has been uncertain throughout the year as investors struggle to determine when the Fed will start rate cuts. Recently, data revealing resilient US economic activity led to a reassessment of rate cut expectations. Markets pushed the potential start date from March to May. However, a 100 basis point gap exists between market expectations and the Fed’s rate projections.

EUR/USD key events today

No significant US or Eurozone economic reports are scheduled for today. Therefore, it might be a slow day for the pair.

EUR/USD technical outlook: Decline pauses, but bears target 1.0800 support

After consolidating between the 1.0900 support and the 1.1000 resistance, EUR/USD broke below the range support. However, the decline paused to retest this range support as resistance. Moreover, the price stayed close to the 1.0900 key level as the 30-SMA caught up. 

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If bears are willing to push prices lower, the pound will bounce lower from the 1.0900 key level to retest the 1.0800 support level. This would complete an impulse leg similar to the one before the consolidation. However, since the price sits slightly above the 30-SMA with the RSI above 50, bulls might take over if the price breaks above 1.0900.

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• Source: https://www.forexcrunch.com/blog/2024/01/22/eur-usd-outlook-investors-gear-up-for-crucial-ecb-meeting/