EUR/USD: THE ECB MAY START LOWERING THE INTEREST RATE AS EARLY AS JUNE

Current trend

The quotes of the EUR/USD pair are trading around 1.0727, holding within a long-term downtrend due to the difference in monetary approaches between the European Central Bank (ECB) and the US Federal Reserve.

Recall that inflation in the Eurozone countries is actively slowing down, and by the end of March, the consumer price index(CPI) fell from 2.6% to 2.4%, allowing financial authorities to adjust the cost of borrowing by 25 basis points in the summer. Officials differ only on what steps to take next: some of them, such as the governor of the National Bank of Austria, Robert Holzmann, believe that it is not worth rushing to further ease monetary policy after the first rate cut, while other members of the regulator, like the governor of the National Bank of Belgium, Pierre Wunsch, insist that the economic risks of keeping the indicator at the peak level for too long are more serious than the risks of changing them too early. Most experts are confident that the "dovish" policy will be dominant this year, allowing the interest rate to be lowered at least three times, by a total of 70 basis points.

At the same time, an early correction of monetary policy by the US Federal Reserve is becoming less likely. With inflation accelerating (it increased to 3.5% in March), American officials are beginning to declare the possibility of a complete rejection of an interest rate cut this year. At the same time, April data from the national labor market, which confirmed signs of its cooling, did not affect the rhetoric of the authorities, although it caused a short-term increase in the EUR/USD pair to the area of 1.0810. The members of the board of the US Federal Reserve remain generally cautious in their comments, stating only that further actions of the regulator will depend on incoming macroeconomic data.

Support and resistance

Technically, the price is testing the 1.0742 mark (Murrey level [4/8]), consolidating below which will allow it to continue moving to the area of 1.0620 (Murrey level [2/8]) and 1.0498 (Murrey level [0/8]). If the level of 1.0803 (Murrey level [5/8]) is broken out, the upward dynamics will resume to 1.0945 (50.0% Fibonacci retracement, the upper limit of the descending channel).

Technical indicators confirm the continuation of the downtrend in the market: Bollinger Bands and Stochastic are pointing downwards, MACD histogram is stable in the negative zone. 

Resistance levels: 1.0803, 1.0945.

Support levels: 1.0742, 1.0620, 1.0498.

Trading tips

Short positions should be opened from the 1.0720 mark with targets of 1.0620, 1.0498 and stop-loss of 1.0790. Implementation period: 5–7 days.

Long positions should be opened above 1.0803 with the target of 1.0945 and stop-loss of 1.0680.