EUR/USD flubs attempt to recapture 1.11, closes flat on Friday

• 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