The EUR/USD exchange rate held steady in the past few months, a trend that may continue in the coming months as top analysts predict a return to US dollar slide amid a divergence between the Federal Reserve and the European Central (ECB). It was trading at 1.1740, much higher than last month’s low of 1.1463.
Top analysts predict a return to US dollar slide
The EUR/USD pair continued rising as many investors predicted that the US dollar index would start its slide in the coming months.
In several reports, analysts by companies like Goldman Sachs and Deutsche Bank noted that all conditions were highly supportive of a dollar slide.
The main reason is the Federal Reserve will likely maintain a dovish tone as other central banks start hiking interest rates.
For example, analysts believe that the Bank of Japan (BoJ) will hike interest rates this month. Also, the expectation among analysts is that the European Central Bank (ECB) will hike in the third quarter of next year.
Other central banks expected to maintain a hawkish view are the Reserve Bank of Australia (RBA), the People’s Bank of China (PBoC), and the Bank of England (BoE).
On the other hand, the Federal Reserve is expected to maintain a dovish tone in a few months.
It has already started its quantitative easing (QE) policy, and officials predict that it will deliver one more cut this year. Analysts see the bank cutting rates more times as Donald Trump will replace Jerome Powell with a ‘puppet’.
The only limit to the bank’s Fed cuts will be other officials, who have started dissenting. Three officials dissented in the last meeting, with some voting for a cut and others for a raise.
ECB interest rate decision ahead
The next key catalyst for the EUR/USD pair will be the upcoming European Central Bank interest rate decision, which will come out on Thursday.
Economists believe that the bank will decide to leave interest rates unchanged in this meeting as the bloc’s economy is doing relatively well and inflation has largely been contained.
As a result, most analysts expect that the bank will hike rates in the third quarter of next year. However, some analysts expect it to cut in March, with a Bloomberg analyst writing:
“While the ECB appears reluctant to cut rates again, our view is that the risks to our call for no change are skewed to the downside. We think the central bank is underestimating the threat US tariffs pose to the region’s economy.”
Therefore, the upcoming monetary policy meeting will shed light on what to expect in the coming meetings.
EUR/USD technical analysis
EURUSD chart | Source: TradingView
The EUR/USD exchange rate has been in an uptrend in the past few days, rising from a low of 1.1463 in November to 1.1740 today. It has formed an inverse head-and-shoulders pattern, a popular bullish continuation sign.
The pair has already moved above this pattern’s neckline, a move that has confirmed its uptrend. At the same time, the Relative Strength Index (RSI) and the MACD indicators have continued rising in the past few weeks.
Therefore, we are staring at a situation where the pair may keep rising as bulls target the next key resistance at 1.1913, its highest level this year. A move above that level will point to more gains, potentially to the psychological point at 1.2000.
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