CFD Trading Rate Euro vs US Dollar (EURUSD)

• EUR/USD steadies below 1.1200 with investors focusing on the inflation data from both the Eurozone and the US.
• The ECB is expected to deliver two more interest rate cuts by year-end.
• Fed’s Mary Daly vows for a 25-basis-points interest-rate reduction in September.

EUR/USD trades in a tight range below the immediate resistance of 1.1200 in Tuesday’s European session. The major currency pair consolidates as investors look for fresh cues about how much the European Central Bank (ECB) and the US Federal Reserve (Fed) will cut interest rates this year.

Market participants currently see an ECB September interest rate cut as certain. The central bank is also expected to cut its key borrowing rates again somewhere during the last quarter of this year. This growing speculation of two additional interest rate cuts responds to easing price pressures in the Eurozone and the uncertainty over its economic outlook.

For the latest update on the current status of Eurozone inflation, investors await the flash Harmonized Index of Consumer Prices (HICP) data for August, which will be published on Friday. On year, the headline and core HICP – which excludes volatile components like food, energy, alcohol, and tobacco – are estimated to have slowed to 2.2% and 2.8%, respectively. The scenario of soft inflationary pressures could weigh on the Euro as it would strengthen market speculation for further rate cuts. On the contrary, surprisingly hot inflation figures would weaken them, providing support to the Euro.

Daily digest market movers: EUR/USD trades sideways while US Dollar struggles for firm footing

• EUR/USD consolidates slightly below 1.1200 as the US Dollar (USD) struggles to gain ground after posting a fresh year-to-date low. The US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, hovers below 101.00. The Greenback is expected to remain sideways as investors focus on the United States (US) core Personal Consumption Expenditure Price Index (PCE) data for July, which will be published on Friday.
• The Federal Reserve’s (Fed) preferred inflation measure could provide cues about the likely pace at which the central bank will cut interest rates in September. The annual core PCE is estimated to have accelerated to 2.7% from the prior release of 2.6%, with monthly figures seen growing steadily by 0.2%. 
• According to the CME FedWatch tool, 30-day Federal Funds Futures pricing data shows that the probability of a 50-basis points (bps) interest rate reduction in September is 28.5%, while the rest points to a 25-bps rate cut, indicating that the Fed return to policy-normalization is certain.
• Meanwhile, most Fed officials also see rate cuts in September as appropriate, given that the central bank is now more worried about emerging risks to the job market. San Francisco Fed Bank President Mary Daly said that "the time is upon us" to cut interest rates, in an interview with Bloomberg on Monday. When asked about the likely size of interest rate cuts, Daily said that she expects a 25-bps interest rate reduction is most likely, however, she left doors open for a 50-bps rate cut if the labor market deteriorates.

Technical Analysis: EUR/USD hovers below 1.1200

EUR/USD turns sideways after posting a fresh swing high at 1.1200. The major currency pair strengthened after a breakout of the Symmetrical Triangle chart pattern on the weekly time frame. The upward-sloping 10-week Exponential Moving Average (EMA) near 1.0940 supports more upside ahead.

The 14-period Relative Strength Index (RSI) oscillates in the bullish range of 60.00-80.00, suggesting a strong upside momentum. Still, it has reached overbought levels at around 70.00, increasing the chances of a corrective pullback. On the upside, the July 2023 high at 1.1275 will be the next stop for the Euro bulls.

Boost in momentum has increased the likelihood of Euro (EUR) reaching 1.1275, UOB Group FX strategists Quek Ser Leang and Lee Sue Ann note.

EUR is set to target 1.1275

24-HOUR VIEW: “We expected EUR to ‘strengthen further towards 1.1225’ yesterday. We indicated that ‘support levels are at 1.1165 and 1.1145.’ Our expectation did not turn out, as EUR traded between 1.1150 and 1.1201, closing at 1.1161 (-0.26%). EUR seems to have entered a consolidation phase and is likely to trade in a range of 1.1140/1.1190 today.”

1-3 WEEKS VIEW: “After EUR soared last Friday, we indicated yesterday (26 Aug, spot at 1.1185) that ‘the boost in momentum has increased the likelihood of EUR reaching 1.1275.’ We continue to hold the same view even though overbought short-term conditions could lead to a couple of days of consolidation first. Overall, we will continue to hold a positive EUR view provided that the ‘strong support’ level at 1.1105 (no change in level) is not breached.”

• EUR/USD gains ground due to improved market sentiment amid easing geopolitical tensions.
• US Air Force General told that concerns about an imminent broader conflict in the Middle East have diminished.
• Traders await the German GfK Consumer Confidence Survey and Gross Domestic Product data, which are scheduled for release on Tuesday.

EUR/USD recovers its recent losses from the previous session, trading around 1.1170 during the Asian hours on Tuesday. The market optimism prevails after concluding a three-day trip to the Middle East, US Air Force General C.Q. Brown, chairman of the Joint Chiefs of Staff, told Reuters early Tuesday that concerns about an imminent broader conflict in the region have diminished.

An exchange of fire between Israel and Lebanon's Hezbollah did not escalate further. However, Hamas has rejected new conditions proposed by Israel in ceasefire negotiations in Egypt, insisting that Israel adhere to the terms outlined by US President Joe Biden and the UN Security Council.

On the Fedspeak front, San Francisco Federal Reserve President Mary Daly stated on Monday in an interview with Bloomberg TV that "the time is upon us" to begin cutting interest rates, likely starting with a quarter-percentage point reduction. Daly suggested that if inflation continues to slow gradually and the labor market maintains a "steady, sustainable" pace of job growth, it would be reasonable to "adjust policy at the regular, normal cadence."

On the EUR front, traders assess the extent to which consolidated expectations of incoming rate cuts by the Federal Reserve will impact European Central Bank (ECB) borrowing costs. Additionally, GfK Consumer Confidence Survey and Gross Domestic Product (GDP) data will be eyed later in the day.

ECB Governing Council member Olli Rehn stated last week that the slowdown in inflation, coupled with weakness in the Eurozone economy, bolsters the case for lowering borrowing costs next month, according to Bloomberg. The subdued growth outlook in Europe, particularly in manufacturing, reinforces the argument for a rate cut in September.

• EUR/USD failed to capture 1.1200 on Monday as markets pare back risk flows.
• Economic calendar remains tepid after blustery showing last week.
• EU inflation, US PCE inflation to dominate the late-week data docket.

EUR/USD pared back recent gains on Monday, slipping back from 1.1200 as traders ease off the gas pedal in broad-market Dollar-negative flows that sent Fiber into its highest bids in 13-months last week. Market risk appetite remains on balance to get the new trading week fired up, but Greenback pressure caught a relief as investors gear up for the long wait to key inflation figures due late this week.

Forex Today: A September rate cut now looks at US data releases

Preliminary EU Harmonized Index of Consumer Prices (HICP) inflation is slated for release on Friday, with little else of note in the way until then. Pan-EU core HICP inflation is forecast to tick down to 2.8% from 2.9% for the year ended in August. 

Most of the trading week will be a quiet affair on the economic calendar. Q2 US Gross Domestic Product (GDP) figures are slated for Thursday, but are broadly expected to hold steady at 2.8% on an annualized basis. Friday could be a kicker for markets that are increasingly focused on the timing and pace of rate cuts from the Fed, with July’s US core Personal Consumption Expenditure - Price Index (PCE) inflation print set to hold steady at 0.2% MoM. The YoY PCE inflation figure is actually expected to tick upwards to 2.7% from 2.6%, but investors are confident that inflation has made enough progress towards the Fed’s 2% target that it will count as “close enough” to still keep the way open to a first rate cut on September 18.

What happened on Monday? 

US Durable Goods Order in July rallied a surprising 9.9% MoM, well above the forecast 4.0% and entirely reversing the previous month’s revised -6.9% contraction.

Despite the upswing on Durable Goods Orders, some trepidation remains; excluding Transportation spending, Durable Goods Orders actually contracted -0.2% MoM, worse than the forecast 0.0% and the previous month’s tepid 0.1%, which was revised down from 0.5%.

EUR/USD price forecast

EUR/USD is on pace for its best single-month performance since November of 2022, up over 3.1% just in the month of August. Despite Monday’s technical exhaustion pullback, Fiber has gained ground for four consecutive trading weeks, and is bidding well above the 200-day Exponential Moving Average (EMA) at 1.0832.

Despite a healthy bid deep into bull country, Fiber is running a deep exposure to a bearish pullback, and a lack of topside momentum could see price action tumble all the way back to the 50-day EMA at 1.0925.

EUR/USD daily chart

EUR rose amid broad USD softness, OCBC FX strategists Frances Cheung and Christopher Wong note.

Potential rising wedge in the making

“Euro was last seen at 1.1164 levels. Bullish momentum on daily chart intact but RSI is in overbought conditions. Potential rising wedge in the making – typically associated with a bearish reversal. We do not rule out the risk of a pullback. Support seen at 1.1140, 1.1090. Resistance at 1.12, 1.1280 levels.”

“On recent ECB speaks, Holzmann said Sep cut is not a foregone conclusion while Chief Economist Lane said that a return to 2% inflation target is not secure yet.”

EUR/USD is consolidating just under 1.12, Friday’s high and the highest for EURUSD since July 2023, which was retested briefly in overnight trade, Scotiabank’s Chief FX Strategist Shaun Osborne notes.

Bulls may try to test 1.12

“Note that EZ/US 2Y spreads are also the narrowest since mid-2023, providing the essential support for the EUR. Germany’s IFO Business Confidence eased to 86.6 this month, down from July but slightly better than forecast. Details reflected weakness across most sectors of the economy outside of services. The index is weak and backsliding but remains well above recessionary levels.”

“Short-term trading patterns suggest the EUR may have peaked in overnight trade after forming a bearish “evening star” pattern on the 6-hour charts. Minor losses through quiet European trade tend to confirm that development. But losses are likely to remain limited in the short run at least.”

“Trend dynamics remain bullish across short, medium and long-term DMI oscillators and that should limit EUR losses to the low/mid 1.11s. Key short-term support is 1.1100/10.”

The Euro (EUR) is likely to strengthen against the US Dollar (USD) further towards 1.1225, but the significant resistance level at 1.1275 is unlikely to come into view today, UOB Group FX strategists Quek Ser Leang and Lee Sue Ann note.

EUR targets the 2023 high of 1.1275

24-HOUR VIEW: “Last Friday, we expected EUR to trade in a range between 1.1085 and 1.1155. EUR traded sideways until NY trade, when it lifted off and touched 1.1200. EUR closed on a strong note at 1.1190 (+0.70%). While conditions are overbought, strong upward momentum suggests further EUR strength, likely towards 1.1225. The significant resistance level of 1.1275 is unlikely to come into view today. Support levels are at 1.1165 and 1.1145.”

1-3 WEEKS VIEW: “In our most recent narrative from last Thursday (22 Aug, spot at 1.1155), we indicated that ‘solid momentum after the recent price action indicates further EUR strength is likely.’ However, we noted that ‘it remains to be seen whether the 2023 high of 1.1275 is within reach in the next couple of weeks.’ Last Friday, EUR soared to a high of 1.1200. The boost in momentum has increased the likelihood of EUR reaching 1.1275. Overall, we will continue to hold a positive EUR view provided that the ‘strong support’ level at 1.1105 (level previously at 1.1045) is not breached.”

• EUR/USD struggles to extend its upside above 1.1200 as the ECB is expected to cut interest rates again in September.
• Fed’s Chairman Jerome Powell gives green signal to an interest-rate cut in September.
• Investors await the US core PCE inflation data for July and flash Eurozone HICP for August.

EUR/USD corrects slightly from 1.1200, the highest level seen in more than a year, in Monday’s European session. Still, the broader outlook for the major currency pair is positive as the US Dollar (USD) remains on the backfoot as a Fed rate cut in September is fully priced in.

The US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, struggles to gain ground after posting a fresh year-to-date (YTD) low of 100.53.

Market expectations for Fed interest rate cuts in September appear to be certain as Fed Chair Jerome Powell said in his speech at the Jackson Hole (JH) Symposium on Friday that “the time has come for policy to adjust”.. Powell’s speech suggested that the central bank is more concerned about growing risks in the labor market, while it is gaining confidence that inflation is sustainably on track to the desired rate of 2%. "We will do everything we can to support a strong labor market, Powell added" 

Even though the Fed is widely anticipated to deliver an interest rate cut in September, traders remain split over its size. According to the CME FedWatch tool, 30-day Federal Funds futures pricing data shows that the likelihood of a 50-basis point (bps) interest-rate reduction is at 36.5%, while the remaining 63.5% points to a smaller 25 bps cut. 

On the economic data front, investors await the United States (US) Durable Goods Orders data for July, which will be published at 12:30 GMT. Economists estimate that fresh orders for Durable Goods rose by 4% after contracting by 6.7% in June.

This week, the major trigger for the US Dollar will likely be the US core Personal Consumption Expenditure Price Index (PCE) data for July, which will be published on Friday. The Fed’s preferred inflation measure is estimated to have grown at a steady pace of 0.2% month-over-month.

Daily digest market movers: EUR/USD corrects mildly on ECB rate cut bets

• EUR/USD trades close to a fresh YTD high of 1.1200 in European trading hours. The major currency pair edges lower as the Euro (EUR) underperforms its major peers amid growing speculation that the European Central Bank (ECB) will reduce interest rates again in the September meeting. The ECB is also expected to deliver one more interest rate cut in the last quarter of this year.
• Market expectations for ECB interest rate cuts in September have increased due to rising uncertainty over the Eurozone economic outlook and easing wage growth. Economic activity in the Eurozone surprisingly rose in August, as shown by the flash HCOB PMI report, but this rebound was largely driven by strong demand in France due to the Olympics in Paris. Economists considered it a one-time event and not a structural change.
• On the contrary, ECB Chief Economist Philip Lane said at the JH Symposium on Saturday that the monetary policy needs to be restrictive. Lane acknowledged that the ECB has made some progress in inflation but also said that the success over inflation is not assured, Reuters reported.
• For more cues on the interest rate guidance, investors will focus on the preliminary German and Eurozone Harmonized Index of Consumer Prices (HICP) data for August, which will be published on Thursday and Friday, respectively. Eurozone annual headline and core HICP, which excludes volatile items, are estimated to have decelerated to 2.3% and 2.8% respectively.
• Meanwhile, the IFO Institute reported on Monday that the German Business Climate, Current Assessment, and Expectations of August beat expectations but remained lower than July’s readings. The reading failed to provide any significant impetus to the EUR/USD pair.

Technical Analysis: EUR/USD delivers fresh swing high at 1.1200

EUR/USD posted a fresh swing high at 1.1200 on the weekly timeframe, suggesting a bullish reversal. The major currency pair strengthened after a breakout of the Symmetrical Triangle chart pattern. The upward-sloping 10-week Exponential Moving Average (EMA) near 1.0940 warrants more upside ahead.

The 14-period Relative Strength Index (RSI) oscillates in the bullish range of 60.00-80.00, suggesting a strong upside momentum. Still, it has reached overbought levels at around 70.00, increasing the chances of a corrective pullback. On the upside, the July 2023 high at 1.1275 will be the next target for the Euro bulls.

• EUR/USD drifts lower to near 1.1185 in Monday’s early European session. 
• Constructive bias of the pair prevails above the 100-day EMA, but the overbought RSI condition might cap its upside. 
• The immediate resistance level emerges at 1.1223; the key support level to watch is the 1.1100 round figure. 

The EUR/USD pair weakens near 1.1185 during the early European session on Monday. The modest recovery of the US Dollar (USD) drags the major pair lower. However, the downside of EUR/USD might be limited as US Federal Reserve (Fed) Chair Powell gave a clear signal for a rate cut in September. 

According to the daily chart, EUR/USD keeps the bullish vibe unchanged as the major pair holds above the key 100-day Exponential Moving Averages (EMA). The 14-day Relative Strength Index (RSI) stands above the midline near 72.70, indicating the overbought RSI condition. This suggests that further consolidation cannot be ruled out before positioning for any near-term EUR/USD appreciation.

The first upside barrier for the major pair emerges at 1.1223, the upper boundary of the Bollinger Band. Further north, the next hurdle is seen at 1.1275 (high of July 18) en route to 1.1360 (high of December 16). The additional upside filter to watch is 1.1483 (high of January 14). 

On the downside, the crucial support level is located at the 1.1100 psychological level. A breach of this level will see a drop to 1.0940 (high of July 18), followed by 1.0873 (the 100-day EMA). 

EUR/USD daily chart

• EUR/USD gains ground due to rising expectations of a Fed rate cut in September.
• Fed Chair Powell stated at the Jackson Hole Symposium, "The time has come for policy to adjust.”
• ECB official Olli Rehn stated that the recent slowdown in inflation bolsters the case for a rate cut next month.

EUR/USD extends its gains for the second session, trading around 1.1190 during the Asian session on Monday. This upside of the EUR/USD pair is attributed to the lower US Dollar (USD) following the dovish speech from the US Federal Reserve (Fed) Chairman Jerome Powell at the Jackson Hole Symposium on Friday.

Fed Chair Jerome Powell stated, "The time has come for policy to adjust." Although Powell did not specify when rate cuts would begin or their potential size, markets anticipate the US central bank will announce a 25-basis points rate cut at the September meeting.

Additionally, Philadelphia Fed President Patrick Harker emphasized on Friday the need for the US central bank to lower interest rates gradually. Meanwhile, Chicago Fed President Austan Goolsbee noted that monetary policy is currently at its most restrictive, with the Fed now focusing on achieving its employment mandate.

On the EUR side, European Central Bank (ECB) Governing Council member Olli Rehn said on Friday that the slowdown in inflation alongside weakness in the Eurozone economy strengthened arguments to lower borrowing costs next month, per Bloomberg. The growth outlook in Europe, especially manufacturing, is rather subdued, which enforces the case for a rate cut in September.

Additionally, Rabobank’s Senior FX Strategist, Jane Foley, remarked on Friday that the EUR/USD pair is expected to trade at 1.1200 on a three-month horizon. Foley noted that the recent breakout and the beginning of a new policy cycle for the Fed indicate that a new trading range is emerging. However, Foley also mentioned that if key US data released in early September comes in stronger than market forecasts, there could be potential pullbacks to around 1.1000 for the pair.