09.04.202414:05 Forex Analysis & Reviews: EUR/USD: Waiting for price turbulence

The euro-dollar pair continues to hold within the range of the 8-figure as it awaits key events of the week. Following yesterday's decline, the price has returned to previous positions. However, one should approach the current price fluctuations with a considerable degree of skepticism, as the outcomes of the ECB's April meeting and (especially) the inflation reports to be published in the USA could significantly reshape the fundamental picture for the pair.

Overall, the resilience of EUR/USD buyers deserves separate commendation. Despite numerous fundamental factors favoring a bearish scenario for the pair, the bulls have steadfastly defended (and continue to do so) their position, not allowing sellers even to test the 7-figure. Looking at the weekly chart of the pair, we can see that for the second week in a row, it has been climbing without significant fundamental justification.

For example, following the previous week, the probability of maintaining the status quo at the June FOMC meeting increased to 50%, whereas back in March, this probability was around 30%. Moreover, the market is 100% confident that following the May meeting, members of the American regulator will maintain a wait-and-see position.

If the Consumer Price Index tomorrow comes out in the "green zone," the prospects for a rate cut in June will be definitively dispelled – the probability of such a scenario will decrease to 40-30%, or even to 20% if accelerated inflation is criticized by members of the FOMC (which is quite likely). According to forecasts, the overall CPI will again demonstrate an upward trend, while the core index will slow down. If both indicators show resilience, dollar bulls will gain another significant advantage.

The "green tint" of March inflation not only postpones the likely date of the first rate cut but also prompts the market to revise the volumes of the Fed's easing. Already, there is increasing skepticism among experts regarding the credibility of the March dot plot. Recall that the majority of Committee members forecasted three rate cuts within 2024, totaling 75 basis points. However, even before the release of inflation data, some analysts are questioning this forecast.

For instance, after the publication of strong data on the U.S. labor market in March, analysts at PIMCO (an American investment company, one of the world's largest bond investors) revised their forecast: now, as the base scenario, they expect only two rate cuts this year. According to analysts, a strong economy will withstand even an additional rate hike if necessary.

By the way, this scenario was recently not ruled out by Michelle Bowman, who, as you know, is a member of the Federal Reserve Board of Governors. Moreover, representatives of the Fed have noticeably toughened their rhetoric lately. In particular, Federal Reserve Bank of Atlanta President Raphael Bostic stated that he expects only one rate cut this year. And not in June – in his opinion, the Central Bank should not start easing monetary policy earlier than the fourth quarter of 2024.

Minneapolis Fed President Neel Kashkari even advocated for maintaining the status quo this year. According to him, the dynamics of inflation is causing great concern – if the situation does not improve soon, then there is no point for the Fed to start cutting interest rates. And although Kashkari does not have a voting right this year, his rhetoric supplements the overall picture.

Jerome Powell, Christopher Waller, Adriana Kugler, and Lorie Logan – all of them in one way or another admitted that the Fed should not rush with monetary policy easing, given the latest inflation trends. If March inflation in the U.S. shows resilience again, hawkish calls will sound louder, not only in the context of the May meeting but also the June one.

Thus, on the eve of important events, the market has frozen in anticipation: the EUR/USD pair does not decline to the area of the 7-figure but is also unable to enter the area of the 9th price level. Starting tomorrow, April 10, the pair will enter the zone of price turbulence: on Wednesday, the Consumer Price Index will be published in the USA, and on Thursday, the Producer Price Index. Additionally, on April 11, we will learn the outcomes of another meeting of the European Central Bank, which may announce a rate cut in June.

In other words, after the next few days, dovish expectations regarding further actions of the Fed may weaken (if inflation in the USA accelerates), while regarding the ECB, on the contrary, they may strengthen (if the regulator transparently hints at rate cuts in early summer).

All this suggests that current price movements of EUR/USD should indeed be treated with a certain degree of skepticism because the whirlpool of upcoming events could pull the pair below 1.0800 (and even 1.0740) or push it into the area of the 9th figure (with the prospect of conquering the 10th price level). Therefore, at the moment, it is advisable to stay out of the market: too much is at stake.