Amazing things are happening. The unexpected statement from the OECD that the ECB should not lower rates before 2025 and the surprise from Morgan Stanley, recommending selling EUR/USD with a target around parity, somewhat cooled the enthusiasm of the euro bulls. The main currency pair reached its highest level since the beginning of August after comments from FOMC member Christopher Waller about the potential easing of the Fed's monetary policy. Could buyers not feel dizzy from such heights?

The OECD asserts that in 2024, global economic growth will lose momentum as incomes fail to recover from the inflation shock, and the impact of high interest rates on economic activity will intensify. As a result, global GDP will expand by a modest 2.7% after increasing by 2.9% in 2023. Only in 2025, thanks to a widespread relaxation of monetary policy, will the global economy accelerate to 3%.

At the same time, the OECD predicts that the Fed will not start lowering rates until the second half of 2024, and the ECB will keep rates at the current level until spring 2025. This contradicts market pricing for a 100 bps reduction in borrowing costs in both the U.S. and the eurozone, putting pressure on risky assets. Expectations of monetary stimulus are the main reason for the rallies in stock indices and EUR/USD. If central banks delay them, the euro will lose a key trump card.

Forecasts for Central Bank Interest Rates

In this regard, the slowdown in consumer prices in Germany and Spain to 3.2% can be interpreted as a 'bullish' factor for EUR/USD. It increases the risks of an earlier easing of the ECB's monetary policy. Note that massive monetary stimulus create a tailwind for stock indices and intensify the pressure on the U.S. dollar.

On the other hand, the unexpected acceleration of U.S. GDP to 5.2% in the third quarter is a different story. The economy turned out to be stronger than expected. If so, its significant slowdown in October–December is questionable. Goldman Sachs holds the same opinion, believing that the U.S. dollar will retain an important trump card in the form of American exceptionalism in 2024. In addition, other economies may struggle with excessively high rates, supporting the USD index.

Spanish Inflation Dynamics

Despite optimistic consensus forecasts for the main currency pair by Bloomberg experts, Goldman Sachs is far from the only company going against the crowd. Morgan Stanley recommends selling EUR/USD from current levels with a target around parity, while ING, JP Morgan, and Societe Generale claim that it is still too early to bet on a sustainable downward trend in the USD index.

Technically, on the daily chart, EUR/USD is implementing the 20-80 strategy. When, after updating the bar with a wide range, quotes head down. However, only a drop in the euro below $1.094 will allow counting on a downward pullback and sales. As long as the pair trades above this level, the sentiment remains 'bullish,' and traders should focus on buying.