- Amidst an upward momentum, the EUR/USD pair rose above the resistance of $1.1080, reaching its highest level in nearly eight months, as expectations of US interest rate cuts by the Federal Reserve pressured the dollar.
- Traders expect a 25-basis-point cut in September, with a 24.5% chance of a larger 50-basis-point cut, and more than 90 basis points of easing by the end of the year.
This week, the focus shifts to the Federal Reserve's Jackson Hole symposium, where Fed Chair Jerome Powell will speak on Friday. In Europe, key data on business activity and wage growth are expected to be released, which could influence the European Central Bank's decision in September. Financial markets are pricing in about 65 basis points of interest rate cuts by the ECB in 2024, implying two 25-basis-point cuts and a 60% chance of a third cut.
According to reliable trading platforms, the EUR/USD exchange rate has overcome significant resistance on the charts and may erode another major level in the coming days, indicating room to eventually return to last December's high of 1.1140 and possibly even recover above that level in the medium to longer term. Technically, the single European currency - the euro - has decisively overcome the stubborn resistance coming from the 61.8% Fibonacci retracement of the December 2023 downward trend last week as the US dollar declined following US producer and consumer price figures indicating that more deflation is likely to be in the making. Furthermore, the economic data has increased market confidence in betting that the Federal Reserve is likely to cut US interest rates by as much as 100 basis points by the end of the year, which would erode the US dollar’s interest rate advantage over other currencies and is likely to be a meaningful development for the US dollar outlook.
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EUR/USD Technical analysis and forecast:
Despite pulling back from its mid-week peak near 1.1050, the overall trend remains bullish for EUR/USD. The daily chart shows that the euro price maintains an upward trend from its early August low. At the same time, the daily chart shows that the euro price maintains a steady upward trend since June. Short, medium, and long-term trend oscillators remain bullish.
The EUR/USD pair now faces additional resistance at 1.1025, a 78.6% Fibonacci retracement level of the December downward trend and the last support of the 200-week moving average at 1.1062. The risk here is that the nearby Fibonacci retracement level at 1.1025 could slow the euro's progress relative to other currencies in the near term, as well as the 200-week average at 1.1062.
Overall, these technical headwinds could be further hampered by the lack of major European economic data on the calendar ahead of the S&P Global Manufacturing and Services PMI surveys in the bloc on Thursday. Final European inflation figures for July on Tuesday are the only major event on the calendar.
Overall, there is a possibility of an upward move towards 1.1140 and the July 2023 high of 1.1275. The previous week's low of 1.0880 has now become a major support.
Both the euro and the US dollar are likely to be very sensitive to the S&P PMI surveys on Thursday. Any sign of fading economic momentum could weigh on each currency in turn, although a weaker EUR/USD could mean that the dollar is more likely to respond than the euro to any negative surprise.
However, the main event for this week is the Federal Reserve's Jackson Hole symposium where Fed Chair Jerome Powell is scheduled to speak publicly on Friday. Concurrently, the market will focus on whether he will confirm or deny expectations of 100 basis points of interest rate cuts by the Fed this year. But another factor that could become increasingly supportive of the euro and burdensome for the dollar in the coming weeks and months is the latest development in US election polls, which now show Democratic candidate Kamala Harris leading former President Donald Trump in several key swing states.
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