CFD Trading Rate Euro vs US Dollar (EURUSD)

The Euro (EUR) fell after French services PMI and German manufacturing PMI slumped into contractionary territory. EUR was last at 1.1143, OCBC FX strategists Frances Cheung and Christopher Wong note.

Mild bullish momentum on daily chart

“Slump in PMIs maybe a concern but it remains to be seen if this is a one-off summer lull or whether it represents a more material economic downturn. Further growth/activity data would be key as confirmation of deeper economic slowdown will suggest that ECB easing may need to play catch up and that would warrant a softer EUR (which markets may contemplate playing this theme pre-emptively).”

“Mild bullish momentum on daily chart shows tentative signs of waning while RSI turned lower. Technically, double-top bearish reversal appears to be forming. Risks skewed to the downside. Support at 1.1090 (21 DMA), 1.1060 (23.6% fibo retracement of 2024 low to high) and 1.10 (50 DMA).”

“Resistance at 1.1160, 1.12 (2024 high). Looking at EUR-crosses, we favour tactical short EURGBP on growth and monetary policy divergence between EU/ECB and UK/BOE.”

There is room for the Euro (EUR) to test the 1.1080 level; the next support at 1.1050 is unlikely to come under threat. In the longer run, EUR is likely to edge lower, but any decline is expected to face strong support at 1.1050, UOB Group FX analysts Quek Ser Leang and Peter Chia note.

EUR must remain below 1.1175 to remain bearish

24-HOUR VIEW: “Our view of range trading yesterday was incorrect, as EUR tumbled, closing lower by 0.45% (1.1112). The sharp drop appears to be a tad overdone, but barring a breach of 1.1150 (minor resistance is at 1.1135), there is room for EUR to test the 1.1080 level. The next support at 1.1050 is unlikely to come under threat.”

1-3 WEEKS VIEW: “In our most recent narrative from last Friday (20 Sep, spot at 1.1160), we indicated that ‘the likelihood of EUR breaking above the year-todate high of 1.1200 has increased.’ Yesterday, EUR fell and broke below our ‘strong support’ level of 1.1100, reaching a low of 1.1082. Not only has upward momentum faded, but downward momentum is beginning to build. From here, we expect EUR to edge lower, but any decline is expected to face strong support at 1.1050. To maintain the momentum buildup, EUR must remain below 1.1175.”

• EUR/USD seems vulnerable near 1.1100 on downbeat flash Eurozone PMI data for September.
• Market participants expect the Fed to cut interest rates further by 50 bps in November.
• Investors shift their focus to the US PCE inflation data for August.

EUR/USD struggles to hold the key support of 1.1100 in Tuesday’s European session after a sharp decline move on Monday. The major currency pair remains under pressure as Monday’s flash HCOB Purchasing Managers Index (PMI) data for September has stoked market expectations for the European Central Bank (ECB) to opt for a second straight interest rate cut in the October meeting. 

The PMI report showed that the business activity unexpectedly sank into contraction, which was estimated to fall slightly but remained above the 50.0 threshold that separates expansion from contraction. 

A decline in the HCOB Composite PMI dominantly came from the manufacturing sector, where contraction in activities accelerated at a faster-than-expected pace. The service sector remained on a growth trajectory but at a slower pace than what economists forecasted.

Weakening Eurozone activity prospects would add to obstacles for ECB policymakers in pursuit of stable market conditions who are already worried about price pressures remaining persistent. Last week, ECB Governing Council Member Isabel Schnabel said that sticky services inflation is keeping headline inflation at an elevated level.

In today’s session, President of Deutsche Bundesbank Joachim Nagel is scheduled to give a speech at 16:00 GMT. Nagel is expected to provide fresh cues on the ECB’s likely interest rate action for the remaining year.

Daily digest market movers: EUR/USD edges lower as US Dollar holds recovery

• EUR/USD stays under pressure as the US Dollar (USD) gains ground after the release of the mixed preliminary United States (US) S&P Global PMI data for September. The US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, strives to trade confidently above 101.00.
• The US S&P Global Composite PMI came in a little lower at 54.4 from the final reading of 54.6 in August as activities in the manufacturing sector unexpectedly declined further. The US S&P Global Services PMI expanded at a faster-than-expected pace of 55.4 but edged lower from the former reading of 55.7. The agency noted that “Business sentiment, demand, hiring, and investment are being subdued by uncertainty surrounding the Presidential Election, casting a shadow over the outlook for the year ahead at many firms.”
• Going forward, the outlook of the US Dollar could remain uncertain as traders hold bets supporting more big rate cuts from the Federal Reserve (Fed) in the November meeting. Financial market participants expect that the Fed will opt for a 50 basis point (bps) interest rate cut for the second straight time in the November meeting amid growing concerns over deteriorating job growth.
• “The Federal Reserve to cut rates by another 50 basis points in November, a decision that will largely depend on incoming data, especially the next monthly jobs report,” according to strategists from Citi.
• On the economic data front, investors will focus on the Personal Consumption Expenditures Price Index (PCE) for August, which will be published on Friday. Signs of price pressures remaining persistent would weigh on market expectations for a Fed 50 bps interest rate cut. On the contrary, soft figures would prompt the same.

Technical Analysis: EUR/USD trades close to 20-day EMA

EUR/USD hovers near 1.1100 in European trading hours on Tuesday. The major currency pair finds support near the 20-day Exponential Moving Average (EMA) near 1.1090.

The outlook of the major currency pair would remain firm till it holds the breakout of the Rising Channel chart pattern formed on a daily time frame near the psychological level of 1.1000. 

The 14-day Relative Strength Index (RSI) moves lower to 55, suggesting momentum is weakening.

Looking up, the round-level resistance of 1.1200 will act as a major barricade for the Euro bulls. A decisive break above the same would drive the pair toward the July 2023 high of 1.1276. On the downside, the psychological level of 1.1000 and the July 17 high near 1.0950 will be major support zones.

• EUR/USD declined in one of its worst days in H2 2024.
• EU PMI figures broadly came in below expectations, while US PMIs also printed lower.
• Tuesday is set to be a quiet day on the Fiber front.

EUR/USD trimmed recent bullish momentum, declining by one-half of one percent on Monday. Fiber declined in one of its worst trading days in the second half of the year after pan-EU Purchasing Managers Index (PMI) figures broadly missed expectations, while the US PMI data print faired only slightly better.

Tuesday will be a quiet affair on the EUR/USD front; little data is expected from either side of the Atlantic, though Federal Reserve (Fed) Governor Michelle Bowman is expected to make an appearance. 

Despite a broad-market weakening in the Greenback following last week’s surprise double rate cut from the Fed, souring market sentiment on behalf of the Euro is keeping EUR/USD under wraps. 

September’s S&P US Manufacturing PMI declined to 47.0 MoM, falling to its lowest level since July of 2023 as the US manufacturing sector sees a continued gloomy outlook on business activity. On the other hand, the S&P US Services PMI eased to 55.4 in September, down from August’s 55.7 but beating the expected print of 55.2.

Fed policymaker and Chicago Fed President Austan Goolsbee hit markets with cooling comments early Monday, noting that much further movement on rates from the Fed could be necessary. The Fed official highlighted that the Fed may need to shoot much lower on policy rates in order to keep business lending conditions sufficiently liquid enough to keep the US business landscape keel-side down as record tightness in the US labor market drains away.

EUR/USD price forecast

Fiber continues to get mired into the 1.1100 handle, and bulls are beginning to show signs of exhaustion from battling price action into the top end of near-term momentum. Despite intraday weakness, EUR/USD continues to remain overall well-bid, with the pair testing into yearly highs despite an inability to reclaim the 1.1200 handle.

EUR/USD daily chart

Further softness German data series could further undermine the outlook for the EUR. EUR/USD may suffer from dips to 1.10 in the weeks ahead, Rabobank’s FX strategist Jane Foley notes.

Further soft data may undermine the outlook for EUR

“This morning’s flash estimate of German September PMI saw business activity falling at the quickest pace in seven months. According to the survey provider, there was ‘a sharp an accelerated reduction in manufacturing production compounded by a near-stalling of growth in the service sector’.”

“It was also reported that ‘the decline in employment also gathered pace as business expectations turned pessimistic for the first time in a year.’ The latter warning may suggest that wage inflation is set to ease. This may hint at a softening in sticky services sector inflation. Further evidence of cooling in services sector inflation is broadly considered to be necessary to trigger further ECB rate cuts.”

“This morning’s data underpin the importance of this week’s German Sep IFO release. Further softness in this series could further undermine the outlook for the EUR. We continue to see scope for dips to EUR/USD1.10 in the weeks ahead.”

Eurozone PMI data were soft all round this month. German and French data all reflected weaker or slowing activity, Scotiabank’s Chief FX Strategist Shaun Osborne notes.

EUR dips as weak PMIs support mild contraction outlook

“French Services slumped after the Olympic boost faded and both French and German Composite readings are below 50 now, putting the preliminary Eurozone Composite data at 48.9, down from 51 in August and well below the 50.5 expected. Yields slipped, driving spreads against the USD wider as markets priced in marginal more risk of an October ECB rate cut (10bps priced in).”

“The Bundesbank’s monthly report last week already acknowledged that a mild contraction was likely already underway in Germany but the dip was not expected to be long-lasting. Policymakers may continue to focus on inflation rather than growth concerns for now.”

“Friday’s stall in the EUR and today’s losses—so far—may pave the way for some corrective weakness in the EUR in the short run. A low close for spot today would form a bearish 'evening star' pattern on the daily chart, strengthening EUR resistance in the 1.12 area and perhaps prompt some corrective EUR losses back to the 1.10 support area”

The likelihood of the Euro (EUR) breaking above 1.1200 has increased, UOB Group FX analysts note.

Bulls may strive to touch 1.1200

24-HOUR VIEW: “While we expected EUR to edge higher last Friday, we held the view that it “is unlikely to be able to break the major resistance at 1.1200.” Our view did not materialise as EUR traded in a quiet manner between 1.1135 and 1.1181, closing largely unchanged at 1.1162 (+0.01%). Momentum indicators are turning neutral, and EUR could continue to trade in a quiet manner. Expected range for today: 1.1135/1.1185.”

1-3 WEEKS VIEW: “Our update from last Friday (20 Sep, spot at 1.1160) remains valid. As highlighted, the likelihood of EUR breaking above the year-to-date high of 1.1200 has increased. However, it remains to be seen if EUR has enough momentum to reach the next resistance at 1.1230. Overall, only a breach of 1.1100 (‘strong support’ level previously at 1.1060) would indicate that the upward pressure that started early last week (as annotated in the chart below) has faded.”

• EUR/USD falls sharply below 1.1100 on weak Eurozone preliminary Purchasing Managers’ Index data of September.
• ECB policymakers appear to be increasingly concerned about inflation remaining persistent.
• Markets expect the Fed to deliver a second consecutive 50 bps interest-rate cut in November.

EUR/USD faces sharp selling pressure and falls below the crucial support of 1.1100 in Monday’s European session. The major currency pair weakens on multiple headwinds: poor Eurozone Purchasing Managers’ Index (PMI) data for September and a sharp recovery in the US Dollar (USD).

The Eurozone Composite PMI surprisingly contracted to 49.0. Economists expected that activities in the overall economy to have grown at a slower pace to 50.6 from 51.0 in August. A sharp contraction in the overall economic activity was majorly driven by weakness in the manufacturing sector and a slower expansion in the service sector activity. 

Commenting on the flash PMI data, Dr. Cyrus de la Rubia, Chief Economist at Hamburg Commercial Bank, said, “The eurozone is heading towards stagnation. After the Olympic effect had temporarily boosted France, the eurozone heavyweight economy, the Composite PMI fell in September to the largest extent in 15 months. The index has now dipped below the expansionary threshold. Considering the rapid decline in new orders and the order backlog, it doesn't take much imagination to foresee a further weakening of the economy.

Signs of further weakness would increase market speculation for a third interest rate cut by the European Central Bank (ECB) in October. Meanwhile, the latest comments from ECB policymakers have indicated that they are more concerned about price pressures remaining persistent. ECB policymakers have emphasized the need for more data pointing to a further slowdown in inflation. On Friday, ECB Vice President Luis de Guindos said that he wants to see more good inflation data before slicing interest rates further. "We will have more information in December than in October," Guindos said.

Daily digest market movers: EUR/USD falls on multiple headwinds

• EUR/USD drops sharply as the US Dollar (USD) gains ground despite growing speculation that the Federal Reserve (Fed) will continue to opt for a larger-than-usual 50 basis points (bps) interest rate cut in the November meeting, as it delivered last Wednesday, amid growing concerns over job growth. According to the CME FedWatch tool, the likelihood of the Fed reducing interest rates by 50 bps to 4.25%-4.50% in November has increased to 51.7% from 29.3% a week ago. 
• On the contrary, the latest Reuters poll to economists shows that the central bank will cut the federal fund rates by 25 bps in each of the monetary policy meetings to be held in November and December. 
• Meanwhile, Fed Governor Michelle Bowman issued a statement on Friday explaining why she was against the decision to begin the policy-easing cycle with a 50-bps rate cut. Bowman, which voted to kick off the rate-cut process with a 25 bps cut, said a larger reduction could stoke overall demand given that inflationary pressures have yet not returned to the bank’s target of 2%.
• On the United States (US) economic data front, investors will focus on the preliminary S&P Global Purchasing Managers’ Index (PMI) data for September, which will be published at 13:45 GMT. The report is expected to show that the Manufacturing PMI came in higher at 48.5 than August’s print of 47.9 but remains below the 50.0 threshold. In the same period, the services PMI is estimated to decline to 55.2 from the former reading of 55.7.

Technical Analysis: EUR/USD drops vertically below 1.1100

EUR/USD dips below 1.1100 in European trading hours. The near-term outlook of the currency pair is expected to find interim support near the 20-day Exponential Moving Average (EMA) near 1.1090.

The outlook of the major currency pair would remain firm till it hold the breakout of the Rising Channel chart pattern formed on a daily time frame near the psychological support of 1.1000. 

The 14-day Relative Strength Index (RSI) moves lower to 55, suggesting momentum is weakening

Looking up, the round-level resistance of 1.1200 will act as a major barricade for the Euro bulls. A decisive break above the same would drive the asset toward July 2023 high of 1.1276. On the downside, the psychological level of 1.1000 and the July 17 high near 1.0950 will be major support zones.

• EUR/USD remains stable ahead of the Purchasing Managers Index data release from Eurozone and Germany.
• The US Dollar may struggle due to the rising likelihood of more Fed rate cuts by the end of the year.
• ECB President Lagarde emphasized that monetary policy needs to stay adaptable.

EUR/USD maintains its position around 1.1160 during the Asian hours on Monday. The US Dollar (USD) may depreciate following the rising likelihood of further interest rate cuts by the Federal Reserve (Fed) in 2024, which may underpin the EUR/USD pair.

The US Federal Reserve cut interest rates by a larger-than-usual 50 basis points to a 4.75-5.00% range last week. Policymakers also predicted an additional 75 basis points (bps) of rate cuts by the end of the year.

However, Federal Reserve Chair Jerome Powell stated in the post-meeting press conference that the Fed is not in a hurry to ease policy and emphasized that half-percentage point rate cuts are not the "new pace."

On Friday, Philadelphia Fed President Patrick Harker stated that the US central bank has effectively steered through a challenging economic landscape in recent years. Harker compared monetary policy to driving a bus, where it's essential to balance speed. He also emphasized that achieving maximum employment is more than just the number of jobs—it also includes the quality of those jobs.

On the EUR front, European Central Bank (ECB) President Christine Lagarde emphasized in her speech on Friday that monetary policy needs to stay adaptable in a constantly evolving world. Although the core objectives of monetary policy, particularly price stability, remain the same, central banks must maintain flexibility to respond to the challenges of a swiftly changing global economy, according to Euronews.

Traders are expected to closely monitor the Purchasing Managers Index (PMI) data from Eurozone and Germany set to be released later in the day. the monthly PMI serves as a leading indicator of business activity, providing insights into economic health and trends.

EUR/USD retains a firm undertone but EUR has drifted off its best levels of the week as short-term yield spreads correct slightly from the peak seen earlier this week, Scotiabank’s Chief FX Strategist Shaun Osborne notes.

Price action is neutral on the intraday chart

“Narrower EZ/US yield spreads overall (the narrowest in more than a year) remain a prime driver of EUR gains and suggest limited scope for EUR losses in the short run at least.”

“The intraday chart reflects better selling pressure developing in the upper 1.11s over the past day or so as investors book profits on EUR longs. Price action is neutral on the intraday chart but broader trends are positive, backed by bullishly-aligned trend strength signals on the short-, medium– and long-term oscillators.”

“Minor EUR dips to the upper 1.10s/low 1.11s should remain well-supported.”

There is room for the Euro (EUR) to edge higher, but it is unlikely to be able the break the major resistance at 1.1200. In the longer run, the likelihood of EUR breaking above 1.1200 has increased, UOB Group FX analysts Quek Ser Leang and Lee Sue Ann note.

Bulls may target 1.1200 in the longer run

24-HOUR VIEW: “EUR traded choppily two days ago. Yesterday, we indicated that ‘despite the choppy price action, the underlying tone seems to have softened somewhat,’ and we expected it to ‘trade in a lower range of 1.1080/1.1140.’ The subsequent price movements did not turn out as we anticipated. EUR dropped briefly to 1.1067 and then soared to 1.1178, closing on a firm note at 1.1161 (+0.39%). Upward momentum has increased slightly. Today, there is room for EUR to edge higher, but it is unlikely to be able to break the major resistance at 1.1200. Support levels are at 1.1130 and 1.1110.”

1-3 WEEKS VIEW: “Two days ago (17 Sep, spot at 1.1125), we highlighted that EUR ‘is likely to continue to rise, but it is unclear at this time if it has sufficient momentum to break above the year-to-date high, near 1.1200.’ After EUR popped briefly to 1.1189, we indicated yesterday (19 Sep, spot at 1.1125) that ‘it is still unclear for now if EUR can break above 1.1200.’ We added, ‘only a breach of 1.1060 (‘strong support’ level) would indicate that the potential for EUR to rise above 1.1200 has dissipated.’ EUR dropped to 1.1067 in Asian trading and then rebounded, reaching a high of 1.1178. There has been a slight increase in momentum, and the likelihood of EUR breaking above 1.1200 has increased as well. However, it remains to be seen if EUR has enough momentum to reach the next resistance at 1.1230. On the downside, the ‘strong support’ level remains unchanged at 1.1060 for now.”

• EUR/USD clings to gains above 1.1150 as more ECB policymakers show concerns over price pressures remaining persistent.
• Investors await ECB Lagarde’s speech for fresh interest-rate guidance.
• The US Dollar remains under pressure on escalating Fed dovish bets.

EUR/USD gathers strength, aiming to reclaim the key resistance of 1.1200 in Friday’s European session. The major currency pair strengthens as the Euro (EUR) performs strongly on growing speculation that the European Central Bank (ECB) will leave its Deposit Facility rate unchanged at 3.5% in its October monetary policy meeting.

A few ECB policymakers have voiced their willingness to follow a gradual policy-easing approach as they want to see more evidence pointing to a slowdown in inflationary pressures. This week, ECB policymakers such as Governing Council member Peter Kazimir, Executive Board Member Isabel Schnabel, and President of Deutsche Bundesbank Joachim Nagel said that price pressures are still higher than where the bank wants them. 

Specifically, ECB Isabel Schnabel said on Thursday that sticky services inflation is keeping headline inflation at an elevated level.

For fresh guidance on interest rates, investors will focus on ECB President Christine Lagarde’s speech, which is scheduled at 15:00 GMT. In her latest comments at ECB policy’s press conference on September 12, Lagarde refrained from proving a pre-defined interest rate cut path. 

"The interest rate decisions will be based on its assessment of inflation outlook in light of incoming economic and financial data, dynamics of underlying inflation, and strength of monetary policy transmission," she said.

Daily digest market movers: EUR/USD gains as market bets for ECB rate cuts in October wane

• EUR/USD remains firm above the crucial support of 1.1150 in Friday’s European trading hours. Lately, the major currency pair has performed strongly due to weakness in the US Dollar (USD). The US Dollar Index (DXY), which gauges the Greenback’s value against six major peers, hovers above the year-to-date low of 100.21.
• The Greenback has weakened following the Fed’s bumper interest rate cut decision and increasing market expectations that the US central bank will continue with an aggressive policy-easing cycle. The Fed reduced interest rates by 50 basis points (bps) as policymakers seem to focus on reviving labor market strength as inflation is declining to the bank’s target of 2%.
• On the interest rate guidance, Fed policymakers see the federal fund rate heading to 4.4% by year-end, according to the latest dot plot. However, traders expect interest rates to decline further, by 75 bps to 4.00%-4.25%, according to the CME FedWatch tool.
• The preliminary consumer confidence reading for the Eurozone will be published at 14:00 GMT. Expectations are for a slight improvement of the index, to -13 in September from -13.5 in August.
• In Friday’s New York session, US investors will focus on Philadelphia Fed Bank President Patrick Harker’s speech at 18:00 GMT for fresh guidance on interest rates.

Technical Analysis: EUR/USD stays above 1.1150

EUR/USD holds trade above 1.1150 in European trading hours. The near-term outlook of the shared currency pair is upbeat on the upward-sloping 20-day Exponential Moving Average (EMA) near 1.1088.

The major currency pair remains firm as it has confidently recovered after retesting the breakout of the Rising Channel chart pattern formed on a daily time frame near the psychological support of 1.1000. 

The 14-day Relative Strength Index (RSI) moves higher above 60.00. A bullish momentum would trigger if it sustains above the aforementioned level.

Looking up, the round-level resistance of 1.1200 will act as a major barricade for the Euro bulls. A decisive break above the same would drive the asset toward July 2023 high of 1.1276. On the downside, the psychological level of 1.1000 and the July 17 high near 1.0950 will be major support zones.

• EUR/USD holds positive ground around 1.1165 in Friday’s Asian session. 
• The pair keeps the positive stance above the key 100-period EMA, with the bullish RSI indicator. 
• The first upside barrier emerges at 1.1172; the initial support level is located at 1.1130. 

The EUR/USD pair trades in positive for the third consecutive day near 1.1165 during the Asian trading hours on Friday. The bearish US Dollar (USD) after the US Federal Reserve (Fed) began its easing cycle with an unexpected 50 basis point (bps) rate cut at its September meeting underpins the major pair. 

The bullish outlook of EUR/USD remains intact as the major pair is well supported above the key 100-period Exponential Moving Averages (EMA) on the 4-hour chart. Furthermore, the upward momentum is reinforced by the Relative Strength Index (RSI), which is above the midline near 67.45, suggesting the further upside looks favorable. 

A decisive break above the upper boundary of Bollinger Band of 1.1172 could see a rally to the 1.1190-1.1200 region. The mentioned level is the confluence of the psychological mark and the high of September 18. Further north, the next hurdle emerges at 1.1240, the high of July 19. 

In the bearish event, the low of September 19 near 1.1130 acts as an initial support level for the major pair. Any follow-through selling below this level will see a drop to the 1.1100 psychological figure. The additional downside filter to watch is 1.1088, the 100-period EMA.  

EUR/USD 4-hour chart

• EUR/USD wrapped itself around the 1.1150 level on Thursday.
• Broad-market Greenback selling has thrown USD-based pairs into a bullish tilt.
• Euro data remains light, markets focused on Fed cut splurge.

EUR/USD found the high end on Thursday, holding fast to the 1.1150 level, though most of the pair’s bullish momentum comes from a broad-market selloff in the Greenback rather than any particular bullish fix in the Euro.

The economic data docket has been particularly light on the European side of things this week. All that remains of moderate note to EUR traders is a scheduled appearance from European Central Bank (ECB) President Christine Lagarde on Friday. Still, even that will be happening during US market hours. ECB President Lagarde will be speaking at the Michel Camdessus Central Banking Lecture in Washington DC.

Forex Today: Will the BoJ surprise markets?

On the US side of things, Initial Jobless Claims eased back to 219K for the week ended September 13, down from the previous week’s revised 231K and under the median market forecast of 230K. The Philadelphia Fed Manufacturing Survey for September also printed well above expectations, with the spread index of manufacturing conditions improving to 1.7 from the previous seven-month low of -7.0 and handily beating the expected print of -1.0.

Fed Chair Jerome Powell convinced markets that the Fed’s outsized jumbo cut of 50 bps this week wasn’t a snap response to deteriorating economic conditions but rather an attempt to get ahead of the curve and bolster the US labor market. Powell successfully floated a rebranding of an entire half-percentage-point cut as a “recalibration,” and investors rewarded the Fed’s latest narrative pivot by pulling out of the Greenback across the board and plowing cash into higher-yielding assets.

EUR/USD price forecast

Despite this week’s Fed-fueled rally, EUR/USD continues to churn just north of the 1.1100 handle. The post-Fed rally has kept Fiber even-keeled in the midweek, but meaningful momentum has yet to materialize and the pair could be poised for an exhaustion play. However, EUR/USD is still cycling chart paper on the high end of recent momentum, and short pressure will have a difficult time staging a full pullback to the 50-day Exponential Moving Average (EMA) near 1.1000.

EUR/USD daily chart

EUR/USD has climbed steadily through the overnight session to regain yesterday’s post-Fed peak against the USD, Scotiabank’s Chief FX Strategist Shaun Osborne notes.

EUR to retest upper 1.11s

“EUR gains are supported by narrowing yield spreads (EZ/US 2Y gap at –133bps today, the narrowest since May last year).”

“Narrower spreads suggest the EUR will remain well-supported on moderate dips and retain a firm tone against the USD for now. Fundamental challenges are creeping up on the EUR, however. The Bundesbank’s monthly report noted today that Germany may already be in a mild recession. A ‘broad-based, long-lasting slump’ was not expected, however.”

“Solid spot gains from the overnight low leave EURUSD trading close to yesterday’s peak and—despite the intraday chop yesterday—sustaining the bullish break out of the EUR August/September consolidation (bull flag). A push through minor resistance at 1.12 (August high) targets gains to 1.1275 (retracement and 2023 high). Support is 1.1120.”

• EUR/USD rises sharply above 1.1150 as investors expect the Fed to continue its aggressive policy-easing cycle.
• The Fed sees interest rates declining to 4.4% by year-end.
• ECB Nagel said that inflation is still higher than the ECB would like to see.

EUR/USD climbs above 1.1150 in Thursday’s European session, driven by a weakening US Dollar (USD), as the dust settles after the Federal Reserve’s (Fed) bumper interest rate cut and expectations of further policy-easing. The USD, tracked by the DXY USD Index, falls back below 100.70 after failing to hold onto a weekly high near 101.50.

The Fed delivered its first interest rate cut move in more than four years, cutting its key borrowing rates by 50 basis points (bps) to 4.75%-5.00%. This large cut by the Fed indicated that policymakers are committed to preventing a further deterioration in labor market conditions and are confident about progress in inflation falling towards the bank’s target of 2%.

Fed Chair Jerome Powell said at the press conference following the policy decision that the United States (US) is not exposed to a recession or even a slowdown. However, market participants expect that the Fed’s policy-easing cycle will be quite aggressive compared to that of other central banks.

According to the CME FedWatch tool, the central bank is expected to cut interest rates by 75 bps in the two meetings remaining this year, suggesting that there will be one more 50 bps rate cut either in November or December. 30-day Federal Funds Futures pricing data shows that the likelihood for the Fed reducing interest rates by 50 bps to 4.25%-4.50% in November is at 35% while the rest favors a 25-bps rate cut.

On the contrary, the Fed’s dot plot showed that policymakers see the federal funds rate heading to 4.4% by the year-end.

Going forward, investors will focus on Initial Jobless Claims data for the week ending September 13, which will be published at 12:30 GMT. The number of individuals claiming jobless benefits for the first time is expected to steady at 230K.

Daily digest market movers: EUR/USD gains on US Dollar’s weakness

• EUR/USD gains at the US Dollar’s expense, while the outlook of the Euro (EUR) is uncertain due to a growing debate about the European Central Bank’s likely interest rate path. ECB policymakers are divided over the policy-easing pace due to mixed views on the inflation outlook. 
• ECB Governing Council member Peter Kazimir and President of Deutsche Bundesbank Joachim Nagel said they want to see more evidence to make sure that inflation will return to the levels the bank wants to see. Nagel said on Wednesday that he supports keeping interest rates sufficiently high to resolve price pressures, Reuters reported.
• On the contrary, ECB Governing Council member and Bank of France President François Villeroy de Galhau said last week that more rate cuts are needed to avoid the risk of inflation coming in too low. The comments from Villeroy came after the ECB delivered its second interest rate cut decision of its current policy-easing cycle.
• Currently, market participants expect that the ECB will cut interest rates one more time in any of its remaining monetary policy meetings this year.

Technical Analysis: EUR/USD bounces back from 20-day EMA

EUR/USD rises above 1.1150 in European trading hours in an intraday turnaround move after declining to near the 20-day Exponential Moving Average (EMA), which trades around 1.1060.

The major currency pair remains firm as it has confidently recovered after retesting the breakout of the Rising Channel chart pattern formed on a daily time frame near the psychological support of 1.1000. 

The 14-day Relative Strength Index (RSI) moves higher to near 60.00. A bullish momentum would trigger if it sustains above the aforementioned level.

Looking up, the round-level resistance of 1.1200 will act as a major barricade for the Euro bulls. On the downside, the psychological level of 1.1000 and the July 17 high near 1.0950 will be major support zones.

Potential of the Euro (EUR) breaking above 1.1200 remains unclear, UOB Group Quek Ser Leang and Victor Yong note.

EUR may test 1.1200 near term

24-HOUR VIEW: “Yesterday, we expected EUR to trade in a 1.1085/1.1145 range. In NY trade, EUR soared briefly to 1.1189, plummeted to 1.1094 and then closed largely unchanged (1.1118, +0.04%). Despite the choppy price action, the underlying tone seems to have softened somewhat. Today, we expect EUR to trade in a range, albeit a lower one of 1.1080/1.1140.”

1-3 WEEKS VIEW: “Two days ago (17 Sep, spot at 1.1125), we highlighted that EUR “is likely to continue to rise, but it is unclear at this time if it has sufficient momentum to break above the year-to-date high, near 1.1200.” Yesterday, EUR rose briefly to 1.1188, pulling back to close largely unchanged. The price action did not result in any increase in momentum, and it is still unclear for now if EUR can break above 1.1200. However, only a breach of 1.1060 (‘strong support’ level previously at 1.1040) would indicate that the potential for EUR to rise above 1.1200 has dissipated.”

• EUR/USD  trades on a flat note around 1.1120 in Thursday’s early European session. 
• The Fed cut rates by 50bps in the September meeting, bringing the new policy rate target to 4.75-5.00%.
• Eurozone annual HICP steadies at 2.2% in August, as expected. 

The EUR/USD pair trades flat during the early European session on Thursday. The major pair initially edges higher to monthly highs of 1.1189 after a large rate cut by the Federal Reserve (Fed) at its September meeting and eases back to near 1.1120.  

The Federal Open Market Committee (FOMC) started its easing cycle, lowering the Fed funds target range by 50 basis points (bps) to 4.75%-5.00% on Wednesday. However, the Fed's forward guidance didn't seem to be as dovish as expected, which help limit the US Dollar’s (USD) losses. 

Fed Chair Jerome Powell stated that “it feels to me that neutral rate is probably significantly higher than it was pre-pandemic”. The median long-term interest rate shifted to 2.9% from 2.8%, with 7 participants now seeing the long-term rate at or above 3.25%. The median projection for unemployment by the end of 2024 was revised to 4.4% from the 4.0% projection in June. Powell reiterated at the press conference that employment markets have now properly normalised, and the additional slowdown is not welcomed by policymakers.

Data released by Eurostat showed that the Eurozone Harmonized Index of Consumer Prices (HICP) rose 2.2% YoY in August, in line with the expectation and the previous reading of 2.2%. Meanwhile, the core HICP inflation holds steady at 2.8% YoY in August, matching the expectation. The European Central Bank (ECB) policymaker Joachim Nagel said on Wednesday that Eurozone inflation is still not as low as the ECB would like, so interest rates need to remain sufficiently high to resolve price pressures. 

Looking ahead, the ECB Executive Board Member Isabel Schnabel is set to speak later in the day. On the US docket, the US weekly Initial Jobless Claims, the Philly Fed Manufacturing Index and Existing Home Sales will be published.

• EUR/USD climbs on reaction to first Fed rate cut since March of 2020.
• Fed delivers a surprising 50 bps rate cut out of the gate.
• Fed dot plot eases lower in September, unemployment forecast ticks slightly higher.

EUR/USD soared into a fresh high for September after the Federal Reserve (Fed) surprised markets with a full 50 bps rate cut on Wednesday, pushing risk appetite into the high side and sending traders scrambling for the buy button. This marks the first Fed rate cut in over four years.

The Fed's dot plot of the Federal Open Market Committee's (FOMC) Summary of Economic Projections was also revised downward from the central bank's previous rate outlook. The median policy expectations from the Fed now see the Fed Funds rate at 4.4% by year-end 2024 and 3.4% by year-end 2025, down from 5.1% and 4.1%, respectively.

Going deeper into the Fed's notes, Fed policymakers now see US Gross Domestic Product (GDP) growth of 2.0% flat through 2024, down from the previous print of 2.1% in June. Fed officials also expected the US Unemployment Rate to settle around 4.4% by the end of 2024.

With the Fed finally catching up to market expectations that have been clamoring for rate cuts since the beginning of the year, global markets are pivoting to catch Fed Chair Jerome Powell's press conference due at the bottom of the hour.

More to come...

EUR/USD 15-minute chart