Euro/U.S. Dollar Rate Carves Bearish Sequence Ahead of ECB Meeting

EUR/USD snaps the range from earlier this month amid growing bets for a March Fed rate-hike, and the pair may stage a larger pullback ahead of the European Central Bank (ECB) meeting as it carves a fresh series of lower highs and lows.

The market reaction to the Congressional testimony with Fed Chairman Jerome Powell suggests the near-term recovery in the greenback will gather pace as the central bank appears to be on track to implement higher borrowing-costs, and the euro-dollar exchange rate may continue to give back the advance from late last year as the Federal Open Market Committee (FOMC) endorses a hawkish outlook for monetary policy. However, the updated forecasts from Chairman Powell and Co. may continue to highlight a neutral Fed Funds rate around 2.75% to 3.00% as the committee struggles to achieve the 2% target for inflation, and more of the same from the central bank may drag on the greenback as market participants scale back bets for four Fed rate-hikes in 2018.

Keep in mind, the European Central Bank (ECB) may start to reveal a more detailed exit strategy as the quantitative easing (QE) program is scheduled to expire in September, and the fresh developments coming out of the March 8 meeting may curb the recent decline in EUR/USD should President Mario Draghi and Co. show a greater willingness to move away from the easing-cycle.

At the same time, the Governing Council may attempt to buy more time amid the recent slowdown in the Euro-Zone’s Consumer Price Index (CPI), and the single-currency may face a bearish reaction if the ECB keeps the door open to further support the monetary union. Interested in having a broader discussion on current market themes? Sign up and join DailyFX Currency Analyst David Song LIVE for an opportunity to discuss potential trade setups!

EUR/USD Daily Chart

Downside targets are back on the radar for EUR/USD as it clears the February-low (1.2206), with the pair at risk for further losses as the Relative Strength Index (RSI) snaps the bullish formation carried over from late last year. As a result, EUR/USD may continue to carve a series of lower highs & lows over the coming days, with a break/close below the 1.2130 (50% retracement) opening up the next downside region of interest around 1.1960 (38.2% retracement) to 1.1970 (23.6% expansion). Want to learn more about popular trading indicators and tools such as the RSI? Download and review the FREE DailyFX Advanced trading guides!

— Written by David Song, Currency Analyst

To contact David, e-mail dsong@dailyfx.com. Follow me on Twitter at @DavidJSong.

To be added to David’s e-mail distribution list, please follow this link.