EUR/USD Outlook: Euro Dips as Investors Perceive Dovish ECB

  • The European Central Bank hiked its interest rates by 50 basis points.
  • The ECB flagged one more 50bps rate hike for next month.
  • Initial claims for state unemployment benefits in the US decreased by 3,000.

Today’s EUR/USD outlook is bearish. As expected, the European Central Bank increased interest rates by 50 basis points on Thursday, which caused a decline in the value of the euro relative to the dollar.

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The ECB said it would make at least one more increase of similar size next month and then assess its monetary policy going forward.

However, the financial markets instantly saw the move as an indication that the tightening cycle might end soon, just as they had done on Wednesday when US Federal Reserve president Jerome Powell warned there were signs that inflation was slowing down.

ECB president Christine Lagarde contested the idea that Thursday’s action indicated the hiking cycle was about to come to an end.

Lagarde emphasized that she would not declare that disinflation had begun in the eurozone.

On Wednesday, the Federal Reserve Chair Jerome Powell was perceived as adopting a more dovish tone about future monetary policy, which caused the dollar index to drop to a nine-month low of 100.80.

According to data released on Thursday, the number of Americans claiming new unemployment benefits unexpectedly decreased last week as the labor market held steady in the face of rising borrowing prices and growing recessionary fears.

For the week ending January 28, initial claims for state unemployment benefits in the US decreased by 3,000 to 183,000, the lowest level since April 2022.

EUR/USD key events today

Investors will pay close attention to the US jobs report and PMI data. Friday’s employment report for January is expected to show an addition of 185,000 jobs in the month.

EUR/USD technical outlook: Bears ahead after whiplash move

EUR/USD technical outlook

The 4-hour chart shows EUR/USD trading near the 30-SMA, a pivotal level where bears and bulls are battling for control. However, a look at the RSI shows that bears are ahead as it has crossed below the pivotal 50-mark.

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If bears can break below the SMA, we might see the price retesting the 1.0850 support level. However, if bulls return and the price fails to break below the SMA, we could see it break above the 1.0925 resistance level and head for the 1.1025 resistance.

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Source: https://www.forexcrunch.com/eur-usd-outlook-euro-dips-as-investors-perceive-dovish-ecb/

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