President of Bundesbank, Joachim Nagel, recently indicated a possible early reduction in interest rates. This led to the euro dropping below the 200-day Simple Moving Average (SMA) against the US dollar (EUR/USD). This occurred despite a positive trend in German IFO Business Sentiment data.
The EUR/USD pair concluded the week on a declining trend, falling within the lower 1.0800s and slipping below the 200-day SMA. This slump was a result of Nagel’s hint at a possible reduction in interest rates and a stagnant US Monetary Policy. The pair appeared vulnerable, despite a brief possibility of recovery towards the end of the week.
Uncertainties such as resuming Brexit talks and the unpredictability of the pandemic may add more turbulence to the EUR/USD pair in the coming weeks. Yet, analysts are hopeful that the currency could regain lost momentum and stabilize in the near future.
Nagel suggested that interest rate cuts could commence as early as June.
Euro dives upon Bundesbank’s rate cut hints
However, he emphasized that this doesn’t guarantee consecutive cuts and that decisions will be made on a meeting-to-meeting basis, using the most recent data.
The German IFO Business Climate Index showed an encouraging increase in German business sentiment to 87.8 in March. This positive report has given a flicker of hope to the weakening EUR/USD pair.
In the upcoming week, comments from central bank authorities could greatly influence the direction of the EUR/USD pair. The focus is anticipated to be on the timing of possible rate cuts, with potential reductions by the European Central Bank (ECB) and the Federal Reserve (Fed) in June.
Political tensions and economic conditions, such as inflation rates and GDP growth, may also impact the pair’s course. Investors are preparing to closely monitor speeches by ECB and Fed leaders to gain insight on monetary policies.
A technical analysis suggests that the EUR/USD pair is nearing a trendline break within the 1.0800 – 1.0900 trading range. If this break occurs, it could signal a shift towards either bullish or bearish market conditions. Nevertheless, overall market sentiment and macroeconomic indicators must be considered before making any trading decisions.
