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Upside favored on rising Fed rate cut bets

  • EUR/USD may trade better bid on dovish Fed expectations. 
  • Markets have priced in March Fed rate cut. 
  • Investors expect the Fed to cut rates three times this year. 
  • German jobs and inflation data and the US Personal Spending number could influence the pair. 

With dovish Federal Reserve (Fed) expectations growing, the path of least resistance for EUR/USD appears to be on the higher side. 

At press time, investors think there is a 99% chance the Fed will cut interest rates by 25 basis points in March, according to CME’s FedWatch tool. The odds that the Fed will cut rates three times this year have also risen to 80%. 

Markets may continue to price in the possibility of aggressive easing as the coronavirus-led sell-off in the US and global equity markets are showing no signs of exhaustion. Currently, the futures on the Dow Jones Industrial Average are reporting a 0.30% drop. The index fell by nearly 2,000 points on Thursday, confirming its worst four-day losing run since the 2008 financial crisis. 

The dollar, therefore, may remain on the offer, while heading into the weekly close. On the data front, German jobs data and preliminary Consumer Price Index for February are scheduled for release. Across the pond, the US will report Personal Spending figure for January. 

The dollar may find bids if the equity market sell-off stalls and the spending figure betters estimates. 

From the technical perspective, the tide looks to have turned in favor of the EUR bulls. The pair jumped over 1% on Thursday, forming a bullish marubozu candle and invalidating the trendline sloping down from Dec. 31 and Feb. 3 highs. On the downside, Thursday’s low of 1.0876 is the level to beat for the sellers. 

Technical levels

 

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