Is 1.07 the Real Bottom for EURUSD in 2024?

The EUR and the USD are moving in different directions lately. People are changing their views on how the ECB and the Fed will handle things. This shift is seen in the drop of rates between EUR and USD.

The changes in the FX and rates markets are because the US has stronger-than-expected inflation and job market numbers, while Europe's data isn't as good. US investors now think the Fed won't make things easier until June. On the other hand, European investors still think there's a good chance the ECB will cut rates in April.

Looking at what's happening in the markets, it seems like most of the bad news for EUR/USD is already priced in. The exchange rate is still lower than what it should be based on certain factors. Also, there's some hope for Europe's future economic outlook, as recent data is showing improvement.

This week, the market participants will be pay attention to more data, like the February Purchasing Managers' Index (PMIs) and the German IFO. Investors in EUR will also be watching the ECB's info on negotiated wage rates. If the data shows things are getting better in Europe, the Euro's outlook might improve, and EUR/USD could stabilize at higher levels, suggesting the worst economic times might be behind us.

Talking about the USD, I find it grappling with the constraints of its perceived exceptionalism. Recent positive releases in labour, activity, and inflation data have led FX investors to contemplate a scenario where the US might avoid a significant economic downturn. In this scenario, a less intense Fed easing cycle in 2024 and 2025, coupled with a prolonged pause as inflation subsides while the real economy stays robust, could provide support to the USD. This support would come through increased US rates, UST yields, and inflows from foreign portfolios.

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