To be fair, Lagarde's talk went as expected. He acknowledged the improving trend in inflation while reaffirming a more data-driven approach. He said it was far too early to discuss rate cuts now, but also noted that the Fed should not be “fixated on a date.” In addition, he defended the possibility of rate cuts “by the summer.”
However, the euro was not impressed by traders' bets on a rate cut in April. After Lagarde's press conference, the probability of a 25bp rate cut in April is now about 91%. This is a slight increase in expectations as his ECB decision yesterday was up to 72%. The total rate cut factored in for this year is currently around 141bps. And this is higher than the ~127bps that was priced in before yesterday's main event.
EUR/USD daily chart
The euro has fallen as a result, but EUR/USD is currently on the edge. This week, the pair remains slightly above its 200-day moving average (blue line). The key level for the day is currently 1.0842 and this is the key level to watch before the close.
If the price breaks below this, sellers will take more control and next test the 1.0800 mark. If we stay above, we'll maintain the push and pull action we've had so far this week.
The pair's price action today has been pretty calm so far, with a range of just 10 pips. However, considering the technical situation mentioned above, we can hope that the situation will improve by the end of the week.
However, with the US PCE price report coming up and also looking at the bond market, the dollar side of the equation could bring more to the table.
The 10-year Treasury yield remains hovering around its 200-day moving average of 4.102%, another key technical level to watch as the week ends. If the dollar breaks below this level, the dollar's resilience is likely to weaken further.
