EUR/USD with a chance of falling to 1,0450? Investors reduce risk

Yesterday, investors reduced risk again. US stocks continued their decline. Technology companies performed poorly again. This is all the result of uncertainty about Fed interest rate cuts this year, poor reports from individual companies and continuing tensions in the Middle East.

The Sp500 index lost for the fourth session in a row. US bond yields fell yesterday after Tuesday's increase triggered by the hawkish tone of Fed Chairman Jerome Powell. The dollar lost slightly. The Beige Book was published yesterday.

Risk of inflation growth

This week is poor in key macro data. From yesterday Beige Book we learn that the US economy has "expanded slightly" since late February and companies have signaled greater difficulty in passing on higher costs to customers. Hence, lower profit margins for companies result. As for consumer spending, it increased slightly. The report varied as to the situation in individual districts. The recent price increase has been moderate.

Companies expect that inflation will remain high for a long time and its decline will be a slow process. The report showed that there is still a high risk of inflation growth, this applies to both input and production prices.

Euro without support from the ECB

The EUR/USD rate has been making a technical correction since yesterday after the recent declines from 1,0880 to almost 1,06. The quotations approached the technical resistance at 1,07 - these are the minimums from February this year. Once this ceiling is reached, the major currency pair will likely return to declines. For now, the euro cannot count on any support from the ECB's monetary policy. The bank will most likely reduce the cost of money in June. Against this background, the Fed seems to be very hawkish. Market expectations regarding the cycle of rate cuts in the US are much lower than indicated by the Federal Reserve's March projections.

Back to the couple EUR / USD it is necessary to indicate where there is another barrier that can stop the course from sliding. It is the lower limit of the descending channel, which has been in place since the last days of December 2023. It can also be speculated that the current downward impulse, which has been going on since March 8, will be of a similar magnitude to the one that was created from the beginning of December and ended around mid-February. However, it cannot be ruled out that the quotations will reach slightly lower, specifically to the lows set at the beginning of October last year at 1,0450.

Source: OANDA TMS Brokers