The EUR/USD finished the week with a robust move higher as bullish behavioral sentiment in financial institutions was confirmed, and now data evidence this coming week will be examined for additional clues.
- The EUR/USD exchange rate went into this weekend near the 1.11620 mark and did touch a high around 1.11900 on Wednesday – followed by the low for the week within a handful of hours near 1.10690 – only to spark more upwards action.
- The ability of the EUR/USD to sustain its higher realms late this week and not suffer any major reversals lower after Wednesday’s volatility is a solid signal.
The U.S Fed’s aggressive rate cut on Wednesday of 0.50% caught some off guard. The U.S central bank without saying it did essentially admit they should have cut interest rates in late July, and having failed to do so, were put in a place that made the larger Federal Funds Rate cut necessary. Financial institutions which have been pricing in a solid round of interest rate cuts from the Fed had their sentiment confirmed. Although the road going forward is not crystal clear, the ECB is likely now going to be freer to also be more dovish.
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Betting Blindly on Upside in the EUR/USD Should Not be Done
Speculators need to understand a lot of the price action regarding the Fed’s interest rate cut last week was already priced into the market. The EUR/USD has correlated to the broad Forex dynamics, but the currency pair actually remains below highs that were achieved in last August of this year when the 1.12000 realm was tested. The U.S will be releasing important Gross Domestic Product numbers this coming Thursday which will affect the EUR/USD.
Jerome Powell sounded positive regarding the U.S economy, but jobs numbers and growth are still in question. Inflation while eroding is still higher than wanted. The U.S will probably cut it Federal Funds Rate again in November – this time by 0.25%, but U.S economic data will have to confirm this is possible. Intriguingly the November FOMC announcement will come after the U.S election has finished a couple of days earlier. The ECB has their next rate announcement on the 17th of October. Short-term traders may ask why this is important, the answer is because behavioral sentiment in financial institutions is looking ahead over the mid-term and affecting their daily decisions.
EUR/USD in the Near-Term
Having been able to go into the weekend sustaining higher price values which were seen in the last week of August puts the EUR/USD into a speculative bullish dynamic per considerations. However, for the EUR/USD to be able to sustain higher values later this week, U.S growth numbers should actually come in slightly weaker than anticipated.
- If the GDP numbers are too strong this may scare some larger traders.
- Trading early this week will likely search for proper equilibrium as they consider last week’s Fed interest rate cut and existing sentiment.
- Volatility should be expected by Forex traders over the next month and a half. The EUR/USD will react to U.S data, central bank rhetoric and concerns about the approaching U.S election.
- Clarity while better regarding the U.S Federal Reserve, still is questionable elsewhere. Choppy conditions early this week are likely.
EUR/USD Weekly Outlook:
Speculative price range for EUR/USD is 1.11090 to 1.12200
The EUR/USD may find itself testing a rather known range and highs achieved last Wednesday may be too much of an ambitious target. Traders should look for quick hitting bets early this week and this thinking process may should into the U.S GDP numbers release which may give some better instincts. The EUR/USD is likely to bounce in a rather healthy fashion over the next three days as financial institutions brace for the U.S growth numbers.
Also, it should be kept in mind U.S jobs numbers will be published on the 4th of October. Short-term traders need to be ready for incremental trading which may demonstrate sudden dashes of velocity if sentiment shifts this week. Expect a test of known values in the coming days as equilibrium is fought over and because of this risk management should be conservative, even if upside is being wagered upon by day traders.
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