Ahead of the release of the minutes of the latest Federal Reserve meeting and then important US employment figures, the euro/dollar (EUR/USD) exchange rate is under pressure from profit-taking selling. Widely, this is a move that has been anticipated, given the recent gains in the euro/dollar pair, which have taken it to its highest level in five months. Therefore, the sell-off pushed EUR/USD towards the support level of 1.0936 in early trading on Wednesday, before stabilizing around 1.0960 at the time of writing.
What is expected for the EURO price in the coming days?
Significantly, investment banks expect interest rate cuts from the Fed and lower US bond yields, and expect the US Dollar/EURO rate to weaken further from exaggerated levels. For example, Goldman Sachs expects the EUR/USD pair to rise to the 1.15 resistance level at the end of the year. Those banks that expect European and global weakness to dominate expect the dollar to regain strength in 2024. Especially, given the size of the US interest rate cuts that have already been put in place.
Also. US currency will consolidate losses, or at least resist them, if the narrative of American exceptionalism persists and global asset prices are at risk. For example, HSBC expects EUR/USD to reach 1.02 at the end of 2024. Even dollar bears are also cautious about the European outlook, limiting the potential scope for EUR/USD gains.
The consensus among analysts was for EUR/USD to trade around 1.11 at the end of 2024, although that may now be revised slightly higher. After two years of strong gains, the dollar rose sharply at times during 2023, but a sharp sell-off late in the year sent the US dollar index down 2.2% year-on-year.
For its part, Goldman Sachs puts the overall dollar position in perspective. “According to our estimates, this still leaves the dollar approximately 14-15% overvalued on a true trade-weighted basis,” he says. In other words, we will still enter 2024 with a relatively strong dollar. Goldman added; “Given the global top-down macro backdrop that includes a significant decline in inflation combined with corporate growth, non-recessionary Fed cuts combined with buoyant equity risk sentiment, we expect dollar strength to continue to erode, but relatively gradually.” “
In general, conditions within the US economy and inflation trends will be very important, especially considering their impact on the US Federal Reserve’s policy. Largely, the dollar's decline was due to the shift in the US Federal Reserve's expectations after the December meeting. The committee members' latest average forecast indicated that US interest rates are likely to be reduced by 75 basis points during 2024 to 4.6%, compared to September expectations of 5.1%. Also, Bank Governor Jerome Powell suggested that the topic of interest rate cuts be on the agenda.
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Technical analysis of the EUR/USD pair:
According to the performance on the daily chart above, the price of the EUR/USD currency pair abandoned the psychological resistance level of 1.1000, giving the bears enough momentum to move the currency pair downward. Currently, the closest support levels that confirm control are 1.0880 and 1.0790, respectively, and from the last level, the technical indicators will begin to decline. Giving saturation sell signals. Over the same period, the bulls must return to stability in the EUR/USD pair above the resistance level of 1.1040 to return to the recent upward path. Shortly, EURO/Dollar will be greatly affected today by the announcement of the content of the minutes of the last meeting of the US Federal Reserve, and by the end of the week the announcement of US job numbers.
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