FOREX Fundamental analysis for EUR/USD on September 23, 2024
The fall in the dollar is not due to the fact that the Fed has focused on the problems of the US economy. According to Jerome Powell, the economy is in good shape, and the 50 basis point rate cut is aimed at maintaining this balance. The aggressive easing of monetary policy indicates the Central Bank's confidence that inflation has been defeated. While the ECB is still cautious, discussing its unpredictability, which contributes to the growth of the EURUSD.
From the Fed's perspective, everything looks logical: the index of personal consumption expenditures in the United States slowed to 2.3% in August, which was the lowest annual growth since 2021. However, in the UK, inflation reached the target in May, and in the Eurozone, the CPI is already closer to the target values than in the United States. Although the European economy is weaker than the American one, the ECB remains cautious, arguing that market expectations for one or two acts of monetary expansion before the end of 2024 are justified.
The futures market assumes a Fed rate cut of 70 bps by the end of this year, and by 2025 the cost of borrowing may fall to 3%. This is a more aggressive strategy than the Fed predicted, but Christopher Waller is ready to support it if the economy continues to slow down. He noted that inflation is slowing down faster than expected. However, not everyone agrees with this opinion. Michelle Bowman, who voted for a smaller reduction, believes that the victory over inflation is not yet final and it is necessary to avoid stimulating excess demand.
Christine Lagarde also spoke about the unpredictability of inflation, pointing to the global upheavals of recent years - the pandemic, armed conflicts and the energy crisis. These challenges have not ended, so Central banks must remain vigilant.
The ECB's more cautious approach contrasts with the Fed's actions, which encourages purchases of EURUSD. Hopes that the Fed would choose a cautious tactic did not materialize, and investors began to adjust their forex trading strategies.
So far, the US elections and positive surprises from American statistics may support the dollar, but at the moment the risks to the continued growth of the euro are increasing. The second breakthrough of EUR/USD to the resistance level of 1.118 may be more successful than the previous attempt, and the weakness of the European PMIs may provide an opportunity for purchases.
EUR/USD Technical analysis
EUR/USD continues to trade in a short-term uptrend. The pair is growing from the area of 1.1105 - 1.1050. The target of buyers is the maximum on September 18. If the quotes can gain a foothold above this maximum, then the next strengthening target will be the upper target zone of 1.1279 - 1.1254.
At the same time, EUR/USD may go into correction from current prices. In this case, we will wait for a retest of the support area of 1.1105 - 1.1050, and from here we will consider new purchases of the pair with the first target of 1.1120 and further - 1.1189.
To change the trend direction and sales, EUR/USD needs to break through and consolidate below the 1.1050 level.