EUR/USD finds support amid ECB dovish signals

The EUR/USD pair found support despite the dovish move by the ECB and conflicting signals from Fed officials. ECB officials give a dovish tone to the policy outlook during wage inflation talks, hinting at a possible rate decrease in June.

The US GDP and core PCE inflation numbers are anticipated by the market, with attention focused on the Fed’s ambivalent position on rate cuts. The EUR/USD trades at 1.0227, down 0.03%, as the Euro pares back some of its earlier losses versus the US Dollar but remains negative. The dovish remarks made recently by the European Central Bank (ECB) contrast with the disagreement among US Federal Reserve policymakers, who are still waiting for proof that the disinflation process is progressing.

At 104.29, the DXY, which compares a basket of US dollars to six other currencies, is essentially steady. The EUR/USD was prevented from falling below 1.0800, which could have allowed for more losses, by the decline in US Treasury bond yields.

ECB Front

ECB policymakers had become dovish in the interim. Officials from the European Central Bank Yannis Stoumaras and Madis Muller said on Tuesday that there is increasing agreement for a rate drop in June and that the ECB is getting closer to the point where it may lower rates.

The ECB is closely monitoring wage inflation to guide its policy, and chief economist Philip Lane stated on Tuesday that it is “on track” to revert to normal levels.

Fed Policymakers Divided

On the US front, Fed officials continued to lay the groundwork for easing policy, but there’s division among the Federal Open Market Committee (FOMC) board. Atlanta’s Fed Raphael Bostic noted that he expects one rate cut instead of two in 2024. Meanwhile, Fed Governor Lisa Cook said that easing policy too soon increases the risk of inflation comeback.

Chicago Fed President Austan Goolsbee, leaning on the dovish side, expects three cuts, though he says he needs more evidence of inflation “coming down.”

Traders Eye US PCE Figures, Further Economic Data

In the US economic docket, investors will eye the release of Gross Domestic Product (GDP) figures for the last quarter of 2023, unemployment claims, and the Fed’s preferred gauge for inflation, the core PCE.

EUR/USD Price Analysis: Technical Outlook

The route to challenge 1.0800 was cleared by the EUR/USD break below the 200-day moving average (DMA) at 1.0836, but light volumes prevented the exchange rate from falling below the day’s low of 1.0810. The Relative Strength Index (RSI) is still pessimistic and continues to trend lower. Nevertheless, the pair bias is still negative. The pair may test the low of 1.0694 on February 14 if sellers push prices below 1.0800.

On the other hand, with buyers regaining 1.0836, the 200-DMA is predicted to rise higher, reaching the 100-DMA at 1.0873 before 1.0900.