EUR/USD Forecast: Dollar loses ground due to decline in US core PCE

• According to the core PCE price index, the rate of increase in inflation was modest at 0.3%.

• The market has raised the probability that the Federal Reserve will cut interest rates in June from 57% to 68.5%.

• ECB’s Giannis Stournaras has called for a 100bps rate cut this year.

Today’s EUR/USD forecast shines with bullish optimism as the dollar weakens in the wake of an expected decline in the Fed’s preferred inflation measure. The decline fueled speculation that the Fed could cut interest rates.

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In particular, the core PCE price index showed that the inflation rate increased by 0.3%, down from 0.5% previously. As a result, the market raised the probability of a June rate cut from 57% to 68.5%. At the same time, market participants expect a 75 basis point rate cut this year. After the report, Fed Chairman Jerome Powell noted that inflation is similar to what the central bank wants.

Investors will now turn their attention to the March employment report. Given the resilience of the economy, the Fed is likely to maintain its current rate cut outlook. On the other hand, if employment falls below expectations, pressure to cut interest rates will increase, potentially leading to higher expectations for interest rate cuts.

Meanwhile, the ECB’s Giannis Stournaras has called for a 100 basis point rate cut in the euro zone this year. This would be the equivalent of four rate cuts, putting the ECB in a more dovish position than the Fed. He also pointed out that the ECB does not need to wait for the Fed to start cutting interest rates. If the ECB becomes more dovish, it will lead to a decline in EUR/USD. Still, the market expects the Fed and ECB to start cutting interest rates in June.

Today’s major events in EUR/USD

EUR/USD Technical Forecast: Price takes a breather and stops falling at 1.0775 support

On the technical side, the decline in EUR/USD is halted at the 1.0775 support level. The price is below the 30-SMA and the bias is bearish. At the same time, the RSI is trading in bearish territory below 50. The price has been trending down since the key level of 1.0950 proved to have solid resistance. Moreover, it is trading in a bearish channel.

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However, despite the lows, the bears are weakening. The RSI is showing a bullish divergence that could lead to a reversal soon. The bulls will take over once the price crosses the 30-SMA.

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