Euro Gains Again Despite More Dovish ECB Commentary

Euro (EUR/USD)Prices, Charts, and Analysis

• EUR/USD seems on track for a second day of gains
• ECB officials have offered some dovish commentary
• EUR approaches its medium-term uptrend line

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The Euro posted further gains on Tuesday, rising on a little general US Dollar weakness and seeming to shrug off more shaky consumer confidence data out of Germany, the Eurozone’s powerhouse economy.

The monthly survey from market research giant GfK showed the headline confidence index at minus 27.4. This was slightly better than both the -27.9 forecast and the previous month’s -28.8. Overall, the survey suggested that, while the worst may be behind the German consumer, improvements so far are incremental.

Still, foreign exchange market focus remains very much on the Dollar and the US Federal Reserve. The Euro has made gains this week, as have other currencies, likely as investors take some profit after EUR/USD falls seen since early March. Fed Chair Powell and others have struck a dovish note in recent days, leaving markets with the impression that rate cuts could begin in June, and continue into this year’s second half.

However, some US rate-setters have sounded less convinced of this. Atlanta Fed President Raphael Bostic and Fed Governor Lisa Cook have both wondered aloud whether inflation levels will permit the three rate-cuts currently viewed as the base case. This tone has contrasted with recent words from European Central Bank governing council members. Madis Muller said on Tuesday that an inflation slowdown might have been confirmed by the time policymakers meet in June,

Bank of Italy Governor Fabio Panetta has already said that inflation was falling quickly back to target while ECB Chief Economist Philip Lane reportedly said on Monday that he was confident of this too. Given this outbreak of dovishness, the Euro’s strength is perhaps surprising. After all, it seemed hugely probable at the start of this year that the Fed would be cutting rates much before the ECB began its process. Now that seems less certain, with the euro’s recent strength perhaps also less certain to endure as a result.

EUR/USD Technical Analysis

EUR/USD Chart Compiled Using TradingView

The Euro has bounced just above the low of February 29 at 1.07976 which continues to provide near-term support.

A slide below that level would be worrying for Euro bulls as it would bring into focus an uptrend line previously dominant since October 3, 2023. That currently lurks some way below the market at 1.07912 but seems likely to face a test in the coming two weeks or so. Bulls will need to crack psychological resistance at the 1.09 handle before attempting to retake the high of March 21 at 1.09400. If they can manage that then the current broad range peak of 1.09989 in in their sights, but that doesn’t look like being reclaimed in the near term.

Despite some strong moves in the last week, there seems to be a lack of conviction around EUR/USD at present. IG’s client sentiment data underline this, with net-longs dominating the scene by only 53% to 47%.

The Euro’s ability to remain above that medium-term uptrend line may be key to more certainty in this market.

–By David Cottle for DailyFX