- Following comments from Federal Reserve Chairman Jerome Powell regarding the possibility of an imminent cut in US interest rates, the EUR/USD currency pair has maintained its gains around the resistance level of 1.1200 at the beginning of this week.
- Bullish momentum is awaiting more catalysts, and the pair may remain on an upward trajectory until the re.action to the announcement of the US Federal Reserve's preferred US inflation reading at the end of the week.
According to reliable trading platforms, EUR/USD has been trending higher in recent months and most of the upward movement has been driven by the weakness of the US dollar rather than the positive drivers of the euro. The background for the euro is stable, but the situation in Sweden and the US may serve as a warning – if unemployment rates rise, the European Central Bank may become more aggressive with its easing cycle.
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EUR – Strong Now
The G7 currency rankings for 2024 may surprise some. The British Pound is in the lead, while the Euro ranks second, followed by the US Dollar. Overall, the euro's strength is partly due to the slow but steady recovery from zero growth at the end of 2023 and the slow pace of cuts from the European Central Bank, which stopped after the initial move in June. However, the upward trend is certainly limited due to the slowing economy in many regions and the likelihood of further cuts until the end of the year and early 2025. Furthermore, purchasing Managers' Indices are likely to reflect once again the struggling German economy and concerns about France and Italy. Only Spain has been impressive, but this will not be able to offset the other problems for long.
Overall, the EUR/USD rally is likely to be based on further dollar weakness. If there are further weak jobs numbers, the pair could break above 1.12 and the 18-month trading range. However, if the Labor market shows signs of stabilization, US markets could adjust their dovish outlook, and this could lift the dollar again.
Warning from the Swedish Central Bank
It is difficult to see how the euro can rise sustainably from its own positive drivers. Other smaller central banks in the region have cut interest rates several times in response to economic weakness, and this tends to anticipate moves by the European Central Bank. The Swedish Central Bank highlights this trend, as it cut interest rates again last Tuesday while also indicating that further easing may follow. Interest rates in Sweden are now 3.5% with the possibility of two or even three more cuts this year. This is largely in response to the rising unemployment rate, which is similar to the situation in the United States - concerns about the Labor market and growth will lead to a more aggressive easing cycle than the one based solely on declining inflation. Recently, unemployment in Sweden has risen by about 1% and the economy appears stagnant.
Furthermore, the warning to euro bulls is clear. The EU economy is already sluggish, but if unemployment figures trend higher, the ECB could step up its easing cycle. Also, this would weigh heavily on the euro and prevent EUR/USD from breaking through the tough resistance in the 1.12 area.
EUR/USD Technical analysis and forecast:
According to the performance on the daily chart, the EUR/USD price will remain on its upward path and breaching the resistance of 1.1200 will support the strong bulls’ control and at the same time will move the technical indicators towards strong overbought levels. Currently, the closest resistance levels are 1.1235 and 1.1300 respectively. Today, the EUR/USD will be affected by the announcement of the German economic growth reading and the US consumer confidence reading. On the other hand, and in the same time frame, stability below the 1.1060 level will be important for the bears to start controlling the pair.
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