- The EUR/USD price analysis indicates a decline in ECB rate cut expectations.
- The European Central Bank lowered borrowing costs by 25-bps as expected.
- Market participants are awaiting the US NFP report.
The EUR/USD price analysis indicates a decline in ECB rate cut expectations after the central bank upgraded its inflation forecasts. As a result, the euro has extended gains to reach new highs. Meanwhile, market participants waited eagerly for the US monthly employment report, which will guide the outlook for Fed rate cuts.
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On Thursday, the European Central Bank lowered borrowing costs by 25-bps as expected. However, the euro rose after the central bank projections revealed an upgrade in the inflation outlook. Policymakers projected inflation at 2.3% this year, compared to the last forecast of 2.1%. As a result, market participants slashed bets for more ECB rate cuts. Currently, traders expect only two more cuts this year.
Furthermore, optimism about Germany’s new spending plans kept the euro in high spirits. A 50 billion euro fund will likely boost growth in the Eurozone. However, it might also lead to a spike in inflation that would cause the ECB to assume a more cautious stance.
Meanwhile, the dollar remained fragile as ongoing trade wars dimmed the outlook for the economy. At the same time, market participants expect the US NFP report to shape the outlook for Fed rate cuts.
EUR/USD key events today
- US average hourly earnings m/m
- US nonfarm employment change
- US unemployment rate
- Fed Chair Powell Speaks
EUR/USD technical price analysis: RSI indicates exhaustion
On the technical side, the EUR/USD price has bounced higher, continuing the bullish rally. The price still trades far above the 30-SMA with the RSI in the overbought region. However, the RSI has made a slight bearish divergence, a sign that bulls are getting exhausted.
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Therefore, the price might pause for a deeper pullback at the next resistance level. The next hurdle is at the 1.0901 level. If the bullish trend pauses at this level, the price will likely drop to retest the 1.0701 level as support. This might coincide with the 30-SMA. If this support zone holds firm, bulls will seek new highs above the 1.0901 level.
However, if the price breaks below the support, it will indicate a bearish shift in sentiment, allowing EUR/USD to fall back to the 1.0500 key support level.
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