CFD Trading Rate Euro vs US Dollar (EURUSD)

• EUR/USD holds gains above 1.1100 as the US Dollar remains under pressure ahead of the Fed’s policy decision at 18:00 GMT.
• Traders seem more confident that the Fed will reduce interest rates by 50 basis points.
• ECB’s Villeroy sees the policy-easing cycle continuing further.

EUR/USD steadies above 1.1100 in Wednesday’s European session ahead of the Federal Reserve’s (Fed) monetary policy announcement at 18:00 GMT. The major currency pair gains as the US Dollar (USD) remains under pressure as the Fed is poised to deliver its first interest rate cut in more than four years.

The US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, struggles to hold its recovery to near 101.00, a rebound fuelled by better-than-expected United States (US) monthly Retail Sales data for August.

The confidence of market participants that the Fed will start the policy-easing cycle aggressively has increased as officials said they remain concerned over a slowdown in job growth. Also, they are confident that inflation is declining towards the bank’s target of 2%.

According to the CME FedWatch tool, 30-day Federal Funds Futures pricing data shows that the probability of the central bank cutting rates by 50 basis points (bps) to 4.75%-5.00% is at 65%, while the rest favors a 25-bps rate cut.

In addition to the Fed’s decision itself, the US Dollar will also be influenced by the Fed’s dot plot, economic projections, and the press conference of Fed Chair Jerome Powell, which will provide fresh guidance on interest rates. The Fed’s dot plot indicates where policymakers see the federal fund rate heading in the medium and long term.

Daily digest market movers: EUR/USD gains even though Euro struggles

• EUR/USD remains firm at the US Dollar’s expense as the Euro (EUR) is underperforming against other major peers on Wednesday. The Euro faces pressure amid growing uncertainty over the European Central Bank’s (ECB) interest-rate path and the Eurozone’s economic performance.
• ECB officials seem split over the interest rate-cut path due to diverging opinions over the inflation outlook. On Friday, the comments from ECB Governing Council member and Bank of France President, François Villeroy de Galhau indicated that more rate cuts are needed to avoid the risk of inflation coming in too low despite a dovish decision on Thursday. In Wednesday’s Asian session, Villeroy said the ECB “is likely to continue to cut rates.”
• On the contrary, ECB Governing Council member Peter Kazimir said on Monday in a blog post: "We will almost surely need to wait until December for a clearer picture before making our next move," Reuters reported. Kazimir emphasized the need to be certain that price pressures continue to decline as projected, “otherwise policymakers might regret rushing to cut borrowing costs before inflation has been sustainably defeated”, he said.
• Financial market participants expect that the ECB will deliver one more interest rate cut in one of its remaining meetings of the year, either in October or December. 
• In the Eurozone calendar, Eurostat will publish at 09:00 GMT the final reading of the Harmonized Index of Consumer Prices (HICP) for August. Economists expect the figures to be aligned with the preliminary estimates, with annual headline inflation at 2.2% and core inflation at 2.8%. 

Technical Analysis: EUR/USD holds gains above 1.1100

EUR/USD steadies above 1.1100 in European trading hours. The major currency pair strengthened after retesting the breakout of the Rising Channel chart pattern formed on a daily time frame near the psychological support of 1.1000. The near-term outlook of the major currency pair has strengthened as the asset steadies above the 20-day Exponential Moving Average (EMA), which trades around 1.1060.

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 high of 1.1155 from September 6 and the round-level resistance of 1.1200 will act as major barricades 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.

The Euro (EUR) is likely to trade in a range, probably between 1.1085 and 1.1145. In the longer run, EUR is likely to continue to rise, but it is unclear if it has sufficient momentum to break above the y-t-d high, near 1.1200, UOB Group FX analysts Quek Ser Leang and Lee Sue Ann note.

EUR to continue to rise in the longer run

24-HOUR VIEW: “We indicated yesterday that ‘there is scope for EUR to test 1.1155, but sustained break above this level seems unlikely.’ Our view did not materialise as EUR rose to 1.1146, pulling back to close at 1.1113 (-0.17%). The price action is likely part of a range trading phase, probably between 1.1085 and 1.1145.”

1-3 WEEKS VIEW: “Yesterday (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.” We will continue to hold the same view as long as 1.1040 (no change in ‘strong support’ level) remains intact.”

• EUR/USD gains traction near 1.1125 in Wednesday’s Asian session. 
• The Fed is widely expected to reduce the benchmark overnight interest rate on Wednesday. 
• Investors await the Eurozone HICP data, which is expected to show an increase of 2.2% YoY in August. 

The EUR/USD pair trades on a stronger note around 1.1125 during the Asian trading hours on Wednesday. The rising expectation of the US Federal Reserve (Fed) deeper rate cut provides some support to the major pair. The Eurozone Harmonized Index of Consumer Prices (HICP) data and the Fed monetary policy meeting will be the highlights on Wednesday.

The markets have remained split on whether the Fed should cut interest rates by 25 or 50 basis points (bps). Futures on the Fed funds rate have priced in nearly 60% odds of a 50 bps rate cut by the Fed at its September meeting on Wednesday, up from 45% last Friday, according to the LSEG.

Boris Kovacevic, global macro strategist at Convera in Vienna, said, "If they go 50, there is a chance that the Fed has some information that investors don't have and that recession risks are more likely than currently anticipated and priced in."

The US Retail Sales unexpectedly rose 0.1% MoM in August versus 1.1% prior, better than the expectation of -0.2%, the US Census Bureau showed Tuesday. Meanwhile, Industrial Production jumped 0.8% MoM in August, compared to a decline of 0.6% in July, above the consensus of 0.2%. 

Less dovish interest rate guidance from European Central Bank (ECB) officials underpins the Euro (EUR) against the USD. ECB policymakers emphasized that the central bank will remain data-dependent when it comes to making future monetary policy decisions.

Investors will monitor the Eurozone HICP inflation data, which is due later on Wednesday. The headline HICP is expected to show an increase of 2.2% YoY in August, while the core HICP is estimated to show a rise of 2.8% in the same period.

• EUR/USD flattened just below 1.1150 on Tuesday.
• Markets are pulling into the midrange ahead of the Fed’s Wednesday rate call.
• Markets are still split on the depth of an initial Fed rate cut.

EUR/USD halted a near-term bullish recovery on Tuesday, easing off of bullish pressure and chalking in an indecision pattern just above 1.1100 as Fiber traders buckle down for the wait to Wednesday’s appearance from the Federal Reserve (Fed).

It’s a low-tier showing on the European side of the economic calendar this week, leaving traders to spin their tires ahead of the Fed’s hotly-anticipated midweek rate trim. 

Forex Today: What if the Fed…?

US Retail Sales figures in August helped to keep market Fed expectations anchored, rising 0.1% compared to the median forecast of a -0.2% contraction. July’s Retail Sales figure was also revised higher to 1.1%, though core Retail Sales (excluding automotive purchases) only rose 0.1% compared to the 0.2% forecast.

The only meaningful event remaining on the data docket this week is the Fed’s upcoming rate call on Wednesday. Markets have been angling for a reduction in the Fed funds rate since the beginning of the year when investors were clamoring for a March cut. According to the CME’s FedWatch Tool, rate markets are still split on the depth of the Fed’s first expected rate trim since early 2020, with rate traders pricing in 60% odds of a 50 bps double cut to kick off the Fed’s next rate cutting cycle. The remaining 40% of rate cut expectations are stacked on a more reasonable 25 bps.

EUR/USD price forecast

Tuesday snapped a near-term recovery in the Fiber, and long-term bulls remain notably skittish on the chart. Price action is still mired in a technical trap after tumbling back from one-year highs in late August, and top-side momentum remains tepid despite a bullish bounce from the 1.1000 handle last week.

EUR/USD daily chart

Germany’s ZEW index reflected a sharper than expected fall in current conditions and expectations in September, Scotiabank’s Chief FX Strategist Shaun Osborne notes.

Technicals remains bullish

“This index tends to be volatile, reflecting sentiment sometimes shaped by market volatility, but German investors are clearly concerned by signs of slowing growth. The EUR drifted back marginally from its intraday peak around the data’s release but remains comfortable trading above the 1.11 area.”

“The EUR’s progress through the ceiling of the downward-sloping consolidation range in development since the end of August suggests more gains in the near/medium term for spot. The range break out has triggered a bull flag pattern on the charts which suggests the recent uptrend in spot can resume.”

“The only caveat is that spot seems—so far—reluctant to push on higher towards 1.12. That is not too surprising, given the fundamental backdrop for markets this week. But it highlights the risk that a failure to develop gains risks dumping spot back to the lower end of the range in the upper 1.09s.”

• EUR/USD rises to near 1.1150 as firm Fed large rate cut prospects weigh on the US Dollar.
• The Fed is expected to cut interest rates by 100 bps by year-end.
• ECB policymakers push back against market October rate cut prospects.

EUR/USD extends Monday’s upside to near the crucial resistance of 1.1150 in Tuesday’s European session. The major currency pair exhibits strength at the expense of the US Dollar (USD), which is weighed by increasing bets that the Federal Reserve (Fed) will opt for a large interest-rate cut on Wednesday. 

The US Dollar trades near a year-to-date-low as the market speculation for a large Fed rate cut has been strengthened after softer-than-expected Producer Price Index (PPI) data for August and media reports pointing that officials keep the door open to such a cut. The US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, hovers near 100.50. 

According to the CME FedWatch tool, the probability of the Fed reducing interest rates by 50 basis points (bps) to 4.75%-5.00% has increased sharply to 69% from 34% a week ago. Apart from the Fed’s interest rate decision, investors will also focus on the dot plot and economic projections. 

The Fed’s dot plot indicates where policymakers see the federal fund rate heading in the medium and long term. Traders see the Fed cutting interest rates by 100 bps to 4.25%-4.50% by year-end, suggesting that the central bank will opt for a large interest rate cut in one of three meetings remaining this year.

In Tuesday’s session, investors will pay close attention to the monthly US Retail Sales data for August, which will be published at 12:30 GMT. Economists estimate the Retail Sales to have grown by 0.2%, slower than the 1.0% increase in July. A slower increase in Retail Sales would indicate a soft inflation outlook.

Daily digest market movers: EUR/USD gains as ECB Kazimir pushes back October rate cut expectations

• EUR/USD rises to near the key resistance of 1.1150 in European trading hours. The major currency pair holds gains as the Euro (EUR) performs strongly as European Central Bank (ECB) officials avoid committing a pre-defined interest rate cut path and prefer to decide on interest rates meeting by meeting.  This occurs amid lingering concerns about economic growth in Germany and a decline in Eurozone inflation to 2.2% in August, the lowest rate in three years.
• Less dovish interest-rate guidance from ECB Governing Council member Peter Kazimir on Monday has also contributed to strength in the Euro. Kazimir pushed back market expectations for the ECB cutting interest rates in October by saying in a blog post: "We will almost surely need to wait until December for a clearer picture before making our next move," Reuters reported. “The ECB needed to be sure that incoming data confirmed its projections. Otherwise, policymakers might regret rushing to cut borrowing costs before inflation has been sustainably defeated,” he added. Also, ECB Governing Council member Gediminas Šimkus said on Tuesday that the probability of an October rate cut is very small.
• Meanwhile, the ZEW Survey – which measures sentiment from institutional investors – showed that Economic Sentiment in the Eurozone has declined significantly to 9.3 in September, the lowest since November 2023. The sentiment data was estimated to have fallen slightly to 17.6 from 17.9 in August.

Technical Analysis: EUR/USD rises further to near 1.1150

EUR/USD gains further to near 1.1150. The major currency pair strengthened after retesting the breakout of the Rising Channel chart pattern formed on a daily time frame near the psychological support of 1.1000. The near-term outlook of the major currency pair has strengthened as the asset steadies above the 20-day Exponential Moving Average (EMA), which trades around 1.1060.

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 high of 1.1155 from September 6 and the round-level resistance of 1.1200 will act as major barricades 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.

Scope for the Euro (EUR) to test 1.1155; a sustained break above this level seems unlikely. IN the longer run, EUR is likely to continue to rise, but it is unclear if it has sufficient momentum to break above the y-t-d high, near 1.1200, UOB Group FX strategists Quek Ser Leang and Lee Sue Ann note.

Above 1.1155 bulls may push towards 1.1200

24-HOUR VIEW: “Yesterday, EUR rose and closed on a strong note at 1.1132 (+0.51%). Strong momentum suggests there is scope for EUR to test 1.1155. A sustained break above this level seems unlikely, and the year-to-date high, near 1.1200, is not expected to come under threat. Support levels are at 1.1105 and 1.1085.”

1-3 WEEKS VIEW: “After dropping to a low of 1.1001 in the middle of last week, EUR rebounded strongly, reaching a high of 1.1137 yesterday. Upward momentum has increased. From here, 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. To maintain momentum, EUR must remain above 1.1040.”

• EUR/USD loses traction around 1.1125 in Tuesday’s Asian session. 
• Investors raise their speculation about the Fed's significant rate reduction at its September meeting on Wednesday. 
• Eurozone HICP inflation data will be released on Wednesday.

The EUR/USD pair trades on a softer note near 1.1125 amid the modest recovery in US Dollar (USD) during the Asian trading hours on Tuesday. Traders brace for the release of US Retail Sales data, which is due later in the day. On Wednesday, the US Federal Reserve (Fed) interest rate decision will take center stage. 

The two-day Fed meeting is scheduled for Tuesday and  Wednesday. The markets will monitor whether the US central bank will implement a 50 basis points (bps) cut or stick to a 25 bps cut at its September meeting. Traders raise their bets that the Fed will cut a jumbo rate on Wednesday, pricing in a nearly 67% possibility of a reduction of 50 bps, up from 50% on Friday, according to the CME FedWatch Tool. The aggressive rate reduction from the Fed might underline the Greenback and act as a tailwind for EUR/USD.
 
The European Central Bank (ECB) decided to lower its interest rates last week, marking its second reduction in the deposit rate this year. ECB Governing Council member Martins Kazaks said on Monday that the central bank will ease monetary policy further, though it shouldn’t do so too hastily due to lingering inflation risks. Meanwhile, ECB policymaker Gabriel Makhlouf stated on Friday that the central bank will remain data-dependent when it comes to making future monetary policy decisions.

Investors await the Eurozone Harmonized Index of Consumer Prices (HICP) data for fresh impetus. The headline inflation is estimated to remain unchanged on a yearly basis in August. If the reading shows a hotter-than-expected outcome, this could lift the Euro (EUR) against the USD. 

• EUR/USD climbed back over 1.1100 as rate cut hopes keep markets afloat.
• A thin week on the EU economic calendar leaves Fed rate focus front and center.
• The Fed is expected to begin cutting rates this week and deliver multiple cuts by year-end.

EUR/USD rose on a tide of Greenback shorting pressure on Monday, with bids getting lifted back above the 1.1100 price handle that flummoxed intraday action to cap off last week. Risk-on market sentiment has kicked off the new week firmly in control as investors stare off into the distance at expected rate cuts from the Federal Reserve (Fed).

Little of note exists on the economic calendar on the European side, outside of an appearance from European Central Bank (ECB) President Christine Lagarde. With little of note on the data docket for the EU, Fiber markets will be hinging entirely on this week’s outing from the US central bank.

Forex Today: US data takes centre stage pre-FOMC gathering

US Retail Sales are slated for an update on Tuesday, but the key datapoint that would normally drive some level of volatility is not expected to move the needle this week unless the print comes in wildly out of alignment with forecasts. MoM US Retail Sales growth in August is expected to ease back to 0.2% from July’s 1.0%, while core MoM Retail Sales (excluding automotive purchases) are expected to tick down to 0.3% from 0.4%.

The Fed kicking off a new rate-cutting cycle on Wednesday is all but a given according to investors, and it now comes down to a debate of how much rather than when. According to the CME’s FedWatch Tool, rate traders are pricing in around 60% odds that the Fed’s first rate cut in over four years will be a 50 bps decline in the Fed funds rate, with the remaining 40% expecting a more demure 25 bps. Rate markets are also pricing in a total of 125-150 bps in cuts by the end of the year, with interest rate traders seeing a roughly 80% chance that the Fed funds rate will hit 400-425 total bps by December 18 versus the current interest rate of 525-550.

EUR/USD price forecast

Monday’s one-sided price action has pulled Fiber bids back into the high end above 1.1100, but long-term bulls remain notably skittish on the chart. Price action is still mired in a technical trap after tumbling back from one-year highs in late August, and top side momentum remains tepid despite a bullish bounce from the 1.1000 handle last week.

EUR/USD daily chart

The Euro (EUR) retraced early week’s losses to end the week flat, OCBC’s FX strategists Frances Cheung and Christopher Wong note.

Factors may be supportive of EUR upside

“Lack of ECB dovishness and broad USD weakness were some of the factors underpinning EUR’s late comeback for the week. A day later, she told reporters that ECB is open to considering a rate cut in October if the economy suffers a major setback though the next comprehensive set of information will only be available at the following meeting (which is December). Banque de France’s Villeroy added that the pace has to be highly pragmatic and that policymakers are not pre-committing to any particular rate path, and they keep their full optionality for next meetings.”

“Other ECB officials also chimed in: 1/ Simkus said that policymakers will need strategic patience as they plot the course ahead and services inflation, wage dynamics are the key uncertainties; 2/ Holzmann said there could be room for another 25bp cut in Dec meeting; 3/ Kazaks said that a cut can be considered if economy feels significantly weaker than is currently expected and inflation also significantly declines; 4/ Rehn said that growth remains slow in the euro-area and downside risks to growth have increased over the summer.”

“On net, the focus is on growth. If growth momentum decelerates significantly, then rate cut cycle may pick up pace. But as of now, there is no rush and ECB prefers to maintain full optionality. On this note, ECB’s no rush to ease vs. greater room for Fed to ease may be supportive of EUR upside. Bearish momentum on daily chart shows signs of fading while RSI rose. Risks are slightly skewed to the upside for now. Resistance here at 1.1140 and 1.12 levels. Support at 1.1010, 1.0970 (50-DMA, 38.2% fibo retracement of 2024 low to high).”

• EUR/USD extends last week’s gains near 1.1120 as rising bets for Fed large rate cuts weigh on the US Dollar.
• Soft US PPI and deepening concerns over labor market outlook prompt Fed jumbo rate cut bets.
• The ECB is expected to cut interest rates once again in the last quarter of the year.

EUR/USD extends last week’s gains near 1.1120 in Monday’s European session. The major currency pair rises as growing speculation for the US Federal Reserve (Fed) to begin the policy-easing cycle aggressively on Wednesday has weighed on the US Dollar (USD). The US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, slides sharply to near 100.70.

According to the CME FedWatch tool, the probability of the Fed reducing interest rates by 50 basis points (bps) to the 4.75%-5.00% range in September has increased sharply to 61% from 30% a week ago. 

Market expectations for the Fed reducing interest rates by 50 bps have increased significantly as the United States (US) annual Producer Price Index (PPI) data for August came in sharply lower than expected on Thursday. 

The headline producer inflation rose at a slower pace of 1.7% year-over-year (YoY) from the estimates of 1.8% and July’s reading of 2.1%. Generally, a sharp slowdown in producer inflation results from growing worries over the demand outlook, which happens due to the weak purchasing power of households in a high-interest rate environment. 

Meanwhile, market experts believe that the Fed will start reducing interest rates in Wednesday’s meeting as officials are worried about deteriorating labor market conditions, with growing confidence that inflationary pressures will sustainably return to the central bank’s target of 2%.

Ahead of the Fed monetary policy decision, investors will focus on the US Retail Sales data for August, which will be published on Tuesday. Retail Sales are estimated to have grown at a slower pace of 0.2% from 1% in July.

Daily digest market movers: EUR/USD moves higher amid weakness in US Dollar

• EUR/USD gains at the US Dollar’s expense. The Euro (EUR) exhibits a mixed performance against its major peers amid uncertainty over the European Central Bank’s (ECB) interest rate cut path. The ECB reduced its Rate on Deposit Facility again by 25 basis points (bps) to 3.50% on Thursday, as expected, but stepped back from providing a pre-defined rate-cut path.
• ECB President Christine Lagarde said at the press conference, "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."
• After the monetary policy announcement, commentaries from ECB officials have added to confidence that the bank’s battle against Eurozone inflation appears to be in the final leg. ECB Governing Council member and Bundesbank President Joachim Nagel said on Friday, "The inflation picture looks very good." Nagel added, "we are now assuming, and the data has shown, that we will reach our inflation target of 2% by the end of the next year."
• Currently, financial market participants expect that the ECB will cut interest rates one more time in the last quarter of the year due to deepening worries over the German economic outlook. Analysts at Nomura said, “The way we think about Germany is that plentiful structural concerns – ranging from the country's greater exposure to China and the global manufacturing cycle, the energy price ‘sticker shock’ still reverberating through the economy, and poor demographic trends (falling population, a rising dependency ratio) – have lowered the bar for any given cyclical downturn to result in recession.”

Technical Analysis: EUR/USD jumps to near 1.1120

EUR/USD extends its upside to near 1.1120 on Monday. The major currency pair strengthened after retesting the breakout of the Rising Channel chart pattern formed on a daily timeframe near the psychological support of 1.1000. The near-term outlook has strengthened as the pair steadies above the 20-day Exponential Moving Average (EMA), which trades around 1.1060.

The 14-day Relative Strength Index (RSI) moves higher to near 60.00. A bullish momentum would trigger after breaking the above-mentioned level.

Looking up, last week’s high of 1.1155 and the round-level resistance of 1.1200 will act as major barricades 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.

• EUR/USD trades on a stronger note near 1.1095 in Monday’s Asian session. 
• The pair keeps the positive outlook above the 100-period EMA, with the bullish RSI indicator. 
• The immediate resistance level emerges at the 1.1100-1.1105 region; the initial support level is located at 1.1072.

The EUR/USD pair gains ground around 1.1095 amid the softer US Dollar (USD) during the Asian trading hours on Monday. Investors will closely monitor the US Federal Reserve (Fed) monetary policy meeting on Wednesday for more cues about how aggressively the Fed will bring down interest rates.

EUR/USD remains capped under the descending trend channel on the four-hour chart. However, the constructive view of the major pair prevails as the price holds above the key 100-period Exponential Moving Averages (EMA). Additionally, the upward momentum is supported by the Relative Strength Index (RSI), which stands above the midline near 63.65, suggesting the path of least resistance is to the upside. 

A decisive break above the 1.1100-1.1105 zone, the psychological level and the upper boundary of the trend channel could see a rally to 1.1155, the high of September 6. Further north, the next upside barrier is seen near 1.1200, the high of August 26. 

On the other hand, the low of September 14 at 1.1072 acts as an initial support level for the major pair. The next cushion level to watch is 1.1061, the 100-period EMA. A breach of the mentioned level could see a drop to 1.1026, the low of September 3. The additional downside filter emerges at 1.0985, the lower limit of the trend channel.  

EUR/USD 4-hour chart

• EUR/USD appreciates in the midst of uncertainty over the scale of the Fed’s upcoming rate cut.
• ECB Governing Council member Gabriel Makhlouf said that the central bank is still operating in a "highly uncertain environment".
• Rabobank suggests that unfavorable Eurozone fundamentals will likely limit the upside potential for the EUR/USD pair.

EUR/USD starts the week on a positive note, edging higher to trade around 1.1090 during the Asian session on Monday. Investors are now focused on the highly-anticipated policy decision from the US Federal Reserve (Fed) later this week. Markets remain divided on whether the Fed will cut rates by 25 basis points (bps) or 50 bps.

According to the CME FedWatch Tool, markets anticipate 48.0% odds of a 25 basis point (bps) rate cut by the Federal Reserve at its September meeting. The likelihood of a 50 bps rate cut has increased to 52.0%, up from 50.0% a day ago.

Investors will closely watch the FOMC Press Conference for insights into the future of US interest rates. If Fed Chair Jerome Powell signals a more aggressive easing approach, it could put downward pressure on the US Dollar, providing a potential boost to the EUR/USD pair.

European Central Bank (ECB) Governing Council member and Central Bank of Ireland Governor Gabriel Makhlouf stated on Friday that the central bank is still operating in a "highly uncertain environment" and will rely on data to guide future monetary policy decisions. Makhlouf emphasized that the ECB is not committing to a specific rate path but remains "determined to ensure" that inflation in the Eurozone returns to the 2% target "in a timely manner."

Rabobank's research notes that the ECB announced its second rate cut of the cycle last week, with another cut anticipated before year-end. The latest ECB staff projections also reflect a downward revision in Eurozone growth. While expectations of Fed easing may weaken the USD, Rabobank suggests that unfavorable Eurozone fundamentals are likely to limit the upside potential for the EUR/USD pair in the near future.

• EUR/USD may have reached too far, too fast in midweek recovery.
• ECB rate cut bump proved fleeting as markets pivot to focus on Fed.
• Investors are jostling for position as rate market weigh odds of a 50 bps Fed cut.

EUR/USD kicked back into the 1.1100 handle on Friday, before market forces weighed on the Euro once again and returned Fiber to the day’s opening bids. The pair has fumbled a near-term technical recovery after a midweek pivot back into the bullish side, and the pair remains constrained as traders pivot to watch for the Federal Reserve’s (Fed) upcoming rate call next week.

The European Central Bank (ECB) cut its main refinancing rate to 3.65% early Thursday this week from 4.25%, dropping their main refi rate by 60 bps. The move helped to spark a brief bullish tilt in the Euro, but momentum has already faltered as Fed rate cut expectations continue to dominate the global market psyche. According to the CME’s FedWatch Tool, rate traders are pricing in a 45% chance of an initial 50 bps rate cut from the Fed when the US central bank gathers to make its rate decision on September 18.

The University of Michigan’s Consumer Sentiment Index rose to 69.0 in September, reaching a four-month high as surveyed consumers’ outlook on the US economy slowly improves following months of declining economic expectations. The upside tilt in UoM survey results helped to anchor rate cut expectations heading into next week, despite the UoM also noting an uptick in 5-year Consumer Inflation Expectations to 3.1% in September from the previous 3.0%.

US Export and Import Price Indexes also declined sharper than expected in August, with the Export Price Index printing a -0.7% contraction versus the expected -0.1%, reversing the previous month’s 0.5% as inflation pressures appear to ease in trade conditions. The MoM Import Price Index in August contracted 0.3%, below the expected -0.2% and down from the previous period’s 0.1%.

EUR/USD price forecast

Despite a near-term decline from 13-month highs set in late August near 1.1200, short pressure is facing significant challenges from Fiber bidders, and the pair refuses to dip all the way back to the 50-day Exponential Moving Average (EMA) at 1.0984.

EUR/USD daily chart

For very good reason the market is preoccupied by the potential policy decisions of the Federal Reserve, Rabobank’s Senior FX Strategist Jane Foley notes.

Risk of EUR/USD dips back to 1.10

“In July, market expectations regarding a possible September rate cut from the Fed began to firm up.  Consequently, since the start of that month the USD has underperformed all other G10 currencies. There are country specific factors which have impacted some of the other G10 currencies in this period and lent them support vs. the USD. The BoJ hiked rates in late July and has maintained a hawkish bias since then.”

“In the UK, the change of government has so far lent support to investor sentiment, while in Australia the RBA has signalled that it retains a hawkish bias. For a few of the G10 currencies, however, it is more difficult to attribute a positive change in their fundamentals over the summer. The BoC announced back-to-back rate cuts in June and July and cut for a third time in September and the Riksbank and the RBNZ cut rates in August.”

“The ECB announced the second rate cut of the cycle earlier this week and another move is widely expected before the end of the year. Latest ECB staff projections also include a downward revision to Eurozone growth. In our view while expectations of Fed easing will keep the USD on the back foot, less than favourable Eurozone fundamentals are likely to cap upside potential for EUR/USD going forward. We continue to see risk of dips back to EUR/USD1.10.”

Thursday’s ECB policy decision yielded no surprises, Scotiabank’s Chief FX Strategist Shaun Osborne notes.

Narrower EZ/US yield differentials push EUR higher

“Rates were trimmed 25bps, as expected, and President Lagarde’s ‘data dependent, meeting by meeting’ approach to future policy adjustment suggests no rush to cut again. With only limited data available ahead of the next rate meeting in October, a December cut looks the most likely way forward from here.”

“The EUR caught a modest bid off the outlook and EZ yields firmed a little. That, plus the dip in US short rates around the Fed outlook today has driven 2Y bond spreads to –138bps, the narrowest since May 2023, helping the EUR retest the 1.11 area.”

“Solid gains yesterday for the EUR and a high close on the week are complemented by some reinvigorated, bullish DMI signals on the intraday and daily charts. A push above 1.1125 consolidation resistance would signal scope for additional EUR gains in the short term at least. Support is 1.1055 now.”

EUR/USD rebounded from its critical support level of 1.10 by 0.6% to 1.1074 after the European Central Bank meeting. As expected, the ECB lowered the deposit facility rate by 25 bps to 3.50%, DBS’ Senior FX Strategist Philip Wee notes.

First Fed cut expected at next week’s FOMC meeting

“In maintaining its stance on deciding rates meeting by meeting based on data, the ECB did not signal another cut at the October 17 meeting. Although the ECB lowered its forecasts for the Eurozone economy to 0.8% from 0.9% for 2024 and to 1.3% from 1.4% for 2025, it expected inflation to rise again in 4Q24 after another low reading In September, in anticipation of negotiated wage growth staying high for the rest of 2024.”

“In line with past guidance, the ECB lowered the main refi and marginal lending facility rates by a larger 60 bps to 3.65% and 3.90%, respectively. This technical adjustment to narrow the gaps between the three policy rates should help rekindle lending between banks and support the economy amid higher inflation in the final quarter.”

“Hence, the ECB will likely defer any decision to lower rates again to the year’s final meeting on December 12. Meanwhile, EUR/USD should keep recovering within its three-week range from markets turning its attention to the first Fed cut expected at next week’s FOMC meeting on September 18.”

The Euro (EUR) rebounded and was last seen at 1.1099 levels, OCBC FX analysts Frances Cheung and Christopher Wong note. 

Bearish momentum on daily chart shows signs of fading

"ECB meeting was perceived as lack of dovishness. 25bp rate cut was delivered, well within market expectations. At the press conference, Lagarde said that it was “pretty obvious” interest rates were on a declining path but that the speed and scale of rate cuts had yet to be determined. She reiterated that policy decision will remain data-dependent in view of the uncertainty and that policymakers shall decide on rates meeting by meeting."

"Elsewhere the broad pullback in USD also contributed to the EUR rebound. Bearish momentum on daily chart shows signs of fading while RSI rose. Risks are skewed to the upside for now. Resistance at 1.1140 and 1.12 levels. Support at 1.1010, 1.0970 (50-DMA, 38.2% fibo retracement of 2024 low to high)."

• EUR/USD rises as increasing bets of a large cut by the Federal Reserve weigh on the US Dollar.
• The ECB said it remains data-dependent for further monetary policy action after Thursday’s cut.
• ECB's President Lagarde refrained from providing a specific interest-rate cut path.

EUR/USD jumps to near 1.1100 in Friday’s European session. The major currency pair rises as the Euro (EUR) strengthens following the European Central Bank’s (ECB) monetary policy announcement on Thursday, and the US Dollar (USD) weakens after soft United States (US) Producer Price Index (PPI) data for August. The ECB cuts its Rate On Deposit Facility by 25 basis points (bps) to 3.50%, as widely anticipated. 

The central bank was already expected to cut its key borrowing rates as the Eurozone economic outlook appears to have faltered due to a weak demand environment and price pressures in the old continent continue to decelerate.

The outlook of the Euro has improved due to the absence of a pre-defined interest rate cut path in the monetary policy statement and ECB President Christine Lagarde’s press conference. Comments from Lagarde indicated that the central bank will follow a data-centric approach, saying, "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," at the press conference.

For the remainder of the year, market participants see the ECB reducing interest rates one more time as price pressures are expected to soften further. In the late Asian session, ECB policymaker Joachin Nagel told German radio Deutschlandfunk, "We assume that core inflation will improve, especially with the declining wage trend in the Eurozone.”

In the economic data front, Eurozone Industrial Production decreased by 2.2% year-over-year (YoY) in July, Eurostat reported on Friday. The number was better than the -2.7% expected and the -4.1% (revised from -3.9%) seen in June. On a monthly basis, Industrial Production decreased by 0.3%, as expected.

Daily digest market movers: EUR/USD gains as US Dollar slides further

• EUR/USD strengthens at the expense of a weak US Dollar. The US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, extends its downside to near 101.00. The Greenback faces sharp selling pressure as market speculation for the Federal Reserve (Fed) to reduce interest rates by 50 basis points (bps) on Wednesday soars.
• According to the CME FedWatch tool, the probability of the Fed reducing interest rates by 50 basis points (bps) to 4.75%-5.00% in September has increased sharply to 43% from 14% after the US PPI data release. 
• Thursday’s PPI data showed that the producer inflation grew at a slower-than-expected pace year-over-year in August. The headline inflation rose by 1.7%, slower than the estimates of 1.8% and from 2.1% in July, downwardly revised from 2.2%. In the same period, the core producer inflation – which excludes volatile food and energy prices – rose steadily by 2.4%, slower than expectations of 2.5%. 
• A slower pace in the price increase of goods and services at factory gates suggests a sluggish consumer spending trend, which historically prompts Federal Reserve (Fed) interest rate cut bets.
• Going forward, investors will focus on the preliminary Michigan Consumer Sentiment Index data for September, which will be published at 14:00 GMT. The sentiment data is estimated to have remained almost steady at 68.0 from the prior release of 67.9.

Technical Analysis: EUR/USD bounces back strongly from 1.1000

EUR/USD soars after retesting the breakout of the Rising Channel chart pattern formed on a daily timeframe near the psychological support of 1.1000. The near-term outlook of the major currency pair has strengthened as it has climbed above the 20-day Exponential Moving Average (EMA), which trades around 1.1055.

The 14-day Relative Strength Index (RSI) oscillates inside the 40.00-60.00 range. A bullish momentum would trigger after breaking above 60.00.

Looking up, last week’s high of 1.1155 and the round-level resistance of 1.1200 will act as major barricades 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.