EUR/USD Finds Stability Amidst Inconclusive Dollar Movement

3 Mei

EUR/USD witnessed a significant rebound on Thursday, returning to the upper end of recent consolidation above the 1.0700 level as market sentiment stabilized ahead of another US Nonfarm Payrolls Friday. The pair faces initial resistance at the weekly high of 1.0750, followed by key levels such as the 200-day SMA at 1.0798 and the April peak of 1.0880. On the downside, a break of the 2024 low of 1.060 could indicate a return to the November 2023 low of 1.0510. The uncertain price action of the US dollar led to mixed movements in EUR/USD around the 1.0700 level on Thursday, influenced by investors' reactions to the recent Federal Reserve decision to maintain interest rates stable. The Fed reiterated its stance on the Fed Funds target range and expressed intentions for potential interest rate cuts amid concerns about inflation and economic balance disruptions. Comments from Chairman Jerome Powell also weighed on the dollar, suggesting reluctance towards rate hikes in future monetary policy adjustments. Despite short-term weakness, expectations of a delayed interest rate cut by the Fed could limit the prolonged weakness of the US dollar. Additionally, US yields decreased while the divergence in monetary policies between the Fed and other G10 central banks, particularly the ECB, persisted. The subdued economic fundamentals of the eurozone contrast with the resilience of the US economy, supporting expectations of a stronger dollar in the medium term, especially with the possibility of the ECB cutting rates before the Fed. Consequently, EUR/USD is expected to undergo a more significant decline in the medium term.