• Traders increased expectations of an ECB rate cut in April.

• The dollar remained stable on Friday as traders assessed the impact of unexpectedly strong economic growth data.

• The dollar has seen a 2% increase this year due to declining Fed rate cut expectations.

On Friday, the EUR/USD outlook was bearish as traders increased their bets for an April rate cut, spurred by the ECB’s monetary policy meeting on Thursday. Despite maintaining interest rates at a record high of 4%, the ECB hinted at forthcoming discussions about rate cuts.

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Policymakers, speaking after the meeting, indicated openness to a shift in stance at the next meeting. This paves the way for an early interest rate cut if upcoming data confirms inflation has eased. At the same time, traders have raised bets on a rate cut in April due to the recent remarks by policymakers. The ECB’s stance has boosted rate cut expectations. Moreover, it supports a bearish outlook for the euro.

On the other hand, the US dollar remained stable on Friday. Traders assessed the impact of unexpectedly strong economic growth data on the Fed’s rate trajectory. Additionally, they expect a key inflation gauge for further insights.

Official data on the advance GDP estimate revealed a 3.3% annual growth rate in the last quarter, beating the forecast of 2%. Furthermore, the report indicated a further easing of inflation pressures.

The dollar has seen a 2% increase year-to-date, reflecting a decrease in rate cut expectations compared to the end of last year. According to the CME FedWatch tool, there is a 50% probability of a rate cut in March, down from 75.6% one month ago.

EUR/USD key events today

• US Core PCE Price Index m/m

EUR/USD technical outlook: Bears break free from consolidation

On the technical side, EUR/USD has broken out of its consolidation area, retested the range support as resistance, and is now continuing its decline. The bearish bias has strengthened as the price has swung far below the 30-SMA. At the same time, the RSI has dipped further into bearish territory, nearing the oversold region.

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Bears are currently targeting the nearest support at 1.0800. This level might trigger a pause or pullback to retest the 30-SMA before the downtrend continues. However, the price might breach 1.0800 without pausing if bears are strong enough.

https://www.forexcrunch.com/blog/2024/01/26/eur-usd-outlook-traders-bet-on-ecb-rate-cut-in-april/