EUR/USD Daily Forecast – Markets Looking for More Fed Rate Cuts in March

The markets don’t seem to think a 50-basis point rate cut is sufficient and are considering the possibility of another rate cut from the Federal Reserve at the scheduled meeting in just under two weeks.

The Fed delivered an emergency rate cut earlier this week in an attempt to curb the negative impact expected on the economy from the Coronavirus. The initial reaction in the markets appeared to be fear as risk aversion kicked in, however, equities have since rallied to fresh highs for the week.

The Futures markets pared back expectations for another rate cut next month shortly after the emergency rate cut, but sentiment has shifted, and the markets want more from the Fed. The latest CME data indicates a 30% probability of another 25 basis points worth of cuts at the Fed meeting on March 18.

The Bank of Canada slashed its interest rate by half a basis point yesterday. The BoC is one of the few banks around the world that have not eased policy over the last few years. The last policy action from the BoC, prior to yesterday’s, was a rate hike in September 2018. Earlier in the week, the Reserve Bank of Australia reduced its interest rate by a quarter percent.

Out of the US yesterday, ADP non-farm payroll figures showed a larger than expected increase in the number of employed people during February. ADP reported an increase of 183 thousand people versus an expected 170 thousand people. However, there was a notable downward revision for January to show 209 thousand extra jobs versus the initially reported 291 thousand additional jobs.

Technical Analysis

What stands out the most in recent EUR/USD price action is the upward momentum. Normally, yesterday’s downturn may have provided a technical signal for a reversal lower, however, considering the recent momentum, there is little reason to believe the pair has reversed.

Another consideration when it comes to assessing the trend is the price relative to its 200-day moving average. The pair easily sliced through it earlier in the week and dips towards the indicator have now twice been bought.

The market often likes to make a run at stops and an obvious area where these might currently be sitting is above 1.1225 resistance. This resistance level triggered a turn at the start of the year to reverse the bullish recovery that took place through the fourth quarter.

To the downside, the 200-DMA, currently at 1.1098 offers support in the session ahead.

Bottom Line

• EUR/USD retreated yesterday after a four consecutive day rally. However, with the markets showing expectations for more rate cuts, the dollar remains at risk of more losses.
• Stops may have accumulated above a major resistance level at 1.1225. The market may try to drive the pair towards this area.