EUR/USD Rallies to Test 200-Day MA as Fed Rate Cut Expectations Rise

EUR/USD soared to its highest levels in over one month in Monday trading. The move came as part of an extended series of gains, after falling to multi-year lows on February 20th. The pair was lifted amid rising expectations of a rate cut from the Federal Reserve at the March 17-18 meeting.

The US stock market suffered heavy losses last week, as fears increased over the global economic impact of the coronavirus. On Friday, Federal Reserve Chair Jerome Powell addressed the issue and hinted at a rate cut, saying: “the coronavirus poses evolving risks to economic activity. The Federal Reserve is closely monitoring developments and their implications for the economic outlook. We will use our tools and act as appropriate to support the economy.”

On Sunday, Goldman Sachs economists stated that the Fed will likely announce a 50 basis point cut at its March meeting, or possibly even earlier. The CME Fedwatch tool currently shows a 100% probability that the Fed will cut rates by 50 basis points at the meeting later this month.

Meanwhile, the European Central Bank (ECB) has limited room to cut rates. However, on Monday Euro zone money markets still priced in a 10 basis point rate cut at the April European Central Bank (ECB) meeting. On Thursday, ECB president Christine Lagarde told the Financial Times that policy makers are monitoring the coronavirus outbreak “very carefully” but said it was not yet viewed to be at a level where it would have a lasting impact on inflation.

Looking at the EUR/USD daily chart we can see that price rose to test the ‘line in the sand’ 200-period moving average. Bulls now eye the prior highs of 1.1173 which represent potential resistance above. Potential support lies below at 1.0991. Investors look ahead to Friday’s US employment report, where analysts expect the unemployment rate to hold steady at 3.6% and that 175K new jobs were created in February.