- Imminent Breakout: EUR/USD signals a technical breakout on the 8-hour chart, with a triangle/flag pattern, raising questions about its direction.
- Central Bank Divergence: Traders expect a March Fed rate cut and an April ECB cut. Doubts arise about the ECB’s commitment due to geopolitical uncertainties emphasized by Council member Robert Holzmann.
The EUR/USD currency pair seems poised for a technical breakout.
Analysing the 8-hour chart reveals a consolidation phase from the start of the year, following a decline below 1.1000, with this mark acting as a resistance level on two occasions since then.
Currently, EUR/USD is resembling a triangle/flag pattern, suggesting a potential technical breakout. The looming question is: Which direction will the pair break out? There are arguments to be made for both sides of the equation, but perhaps the case for a break to the downside is more convincing?
Traders are pricing in an ~80% probability of a Fed rate cut in March. Simultaneously, an European Central Bank (ECB) rate cut for April is also on the horizon.
While both central banks might fail to meet these expectations, the likelihood that the Fed pushes back might be lower than that of the ECB.
According to Governing Council member Robert Holzmann, speaking at the World Economic in Davos, the prospect of ECB rate cuts in 2024 appears highly unlikely. At the same time, he emphasized the persistent threat of geopolitical conflicts, such as those in the Middle East, which pose a risk to Euro supply chains and energy markets. This ongoing uncertainty could exert pressure on consumer prices, creating a challenging environment that might interfere with any potential rate cuts from the ECB.
