FX.co ★ Hot forecast for EUR/USD on February 5, 2024

Federal Reserve Chair Jerome Powell gave an interview in which he bluntly stated that the US central bank is unlikely to have enough confidence about inflation to cut rates as soon as March due to mixed economic reports. However, this isn't the reason why the dollar significantly strengthened. Instead, it rose due to the economic data. The Labor Department said US employers added a whopping 353,000 jobs last month. Not only is this significantly more than the forecast of 175,000, but it is also noticeably higher than the number of new jobs needed to maintain labor market stability. In other words, the labor market continues to improve, despite the unemployment rate holding steady at 3.7%. So, there are persistent risks of overheating in the labor market. It is time to think about interest rate hikes instead of rate cuts. Although Powell claimed that interest rates had reached their peak. Therefore, we arrived at a simple conclusion: if the Fed does lower interest rates, it won't happen anytime soon. Clearly, later than spring, as all forecasts suggest. At best, it might not happen until summer. More likely, it might be in the fall. And this is the main reason why the dollar is confidently rising.

The dollar will likely strengthen today as well. This time, due to European economic reports. According to forecasts, euro area producer prices are expected to fall at an accelerated pace from -8.8% to -10.2%. Such a sharp decline indicates increasing risks of the European economy sliding into deflation. Although not long ago, Europe suffered from extremely high inflation, which is why the European Central Bank has tightened its monetary policy substantially. Now, inflation is confidently going down, and the Producer Price Index suggests the possibility of deflation. The ECB clearly has no choice but to start easing its monetary policy. Thus, by the time the Fed starts to lower its interest rates, the ECB will have already done so several times. And the interest rates in Europe are already lower than in the United States.

Amid intense speculative movement, EUR/USD has breached the support level of 1.0800. This has extended the current downward cycle in the market, which points to the increase in the volume of short positions.

On the four-hour chart, the RSI indicator is moving in the lower area of 30/50, which confirms an increase in selling volumes.

On the same time frame, the Alligator's MAs are headed downwards, aligning with the current cycle.

Outlook

Keeping the price below the level of 1.0800 increases the bears' chances of witnessing further downward movement. However, it's worth considering that there are already technical signs of oversold conditions in the short term. This may have a negative impact on the volume of short positions.

The complex indicator analysis suggests a downtrend in the short-term and intraday periods.