The EUR/USD pair has been extending its gains near 1.1120 as speculation increases for the Federal Reserve to implement aggressive rate cuts, causing the US Dollar to weaken. This comes as the probability of the Fed reducing interest rates by 50 bps in September has risen to 61%, prompting growing concerns over the labor market outlook and inflationary pressures. The US Dollar Index has also decreased to around 100.70 due to these factors.
Market expectations for the Fed’s interest rate reductions have surged following the US PPI data for August, which was lower than expected. Producer inflation rose at a slower pace of 1.7% YoY, signaling weakening demand outlook due to high-interest rates affecting household purchasing power. Fed officials are expected to start lowering interest rates to combat deteriorating labor market conditions and aim to reach the central bank’s target of 2% inflation.
Investors are closely watching the upcoming US Retail Sales data for August before the Fed’s monetary policy decision on Wednesday. Retail Sales are projected to have slowed to 0.2% growth from 1% in July. Meanwhile, the Euro has been gaining against the US Dollar, with uncertainty prevailing over the ECB’s interest rate cut path. ECB officials have indicated a cautious approach to further rate cuts in light of inflation outlook and economic data.
After the ECB reduced its Rate on Deposit Facility by 25 bps to 3.50% as expected, market participants anticipate one more rate cut in the last quarter of the year. German economic concerns have fueled worries over the Eurozone’s outlook, prompting analysts to anticipate additional monetary policy easing. The Euro has shown strength against the Pound, Yen, Canadian Dollar, Australian Dollar, New Zealand Dollar, and Swiss Franc.
EUR/USD technical analysis reveals that the pair aims to stabilize above 1.1100, with a near-term outlook strengthening as it hovers above the 20-day EMA around 1.1060. The RSI indicator is moving higher, nearing 60.00, indicating a potential bullish momentum. Key resistance levels for the Euro bulls include 1.1155 and 1.1200, while major support zones lie at 1.1000 and 1.0950. Investors will be monitoring these levels closely for potential price movements.
Overall, the EUR/USD pair continues to see upward momentum as speculation for the Fed’s rate cuts intensifies, weighing on the US Dollar. Market participants are closely monitoring economic data releases and central bank decisions for further clues on monetary policy direction. The Euro’s performance against other major currencies is also being watched closely, with expectations of additional rate cuts by the ECB in the coming months.
