FOREX Fundamental analysis for EUR/USD on September 9, 2024
The dollar has shown that it is not worth rushing to conclusions. In August, employment growth in the United States amounted to 142 thousand, which, it would seem, should have weakened the greenback. Moreover, the data for the previous months were revised for the worse, which led to an average of 116 thousand for three months. This raised expectations of a rate cut by 50 basis points in September with a probability of up to 50%, and pushed EUR/USD to 1.115. However, the situation has suddenly changed.
The reaction of the markets is often superficial, but the details are important. The unemployment rate fell from 4.3% to 4.2%, and monthly wage growth accelerated from 0.3% to 0.4%. This indicates that the labor market remains stable and does not show significant deterioration, which is key to the Fed's decision. As noted by FOMC member Christopher Waller, although the labor market is softening, it is not collapsing, which caused a change in the dynamics of EUR/USD. As a result, the probability of a 50 basis point rate cut decreased to 31%.
Investors began to realize that the Fed may act more cautiously than expected, which raises doubts about aggressive forecasts. reduction of rates by 225 bps over the next year. Such expectations seem excessive.
The market's position is logical: the Fed was late in tightening monetary policy in 2022, which allowed inflation to accelerate. If the Fed slows down now, a recession may become inevitable. "Pigeons" from the Fed, such as the president of the Chicago Fed, Ostan Goolsby, believe that for a smooth slowdown in the economy it is necessary to act ahead of the curve, without waiting for a deterioration in the labor market.
The Fed's shift in focus from inflation to employment may reduce the impact of CPI data on the market. US inflation is expected to slow from 2.9% to 2.6%, while core inflation will remain at 3.2%. Nevertheless, the results of the US presidential debate and the decision of the European Central Bank may be more important for the EUR/USD pair.
The market is planning to reduce the ECB deposit rate from 3.75% to 3.5%, but further actions remain in doubt. If ECB President Christine Lagarde continues her dovish rhetoric, the euro may weaken.
In addition, the strengthening of Donald Trump's position against the background of lagging behind Kamala Harris may bring back into play a factor that has a positive effect on the dollar.
The failure of the EUR/USD bulls to stay above the 1.11 level indicates the weakness of buyers. A breakdown of support at 1.1065 will create conditions for building up short positions.
EUR/USD Technical analysis
EUR/USD last week tested the boundary of the short-term downtrend of 1.1165 - 1.1152. After that, the price returned under resistance 1.1118 - 1.1110 and reached the first sales target of 1.1072. Today, market participants are likely to try to gain a foothold below Friday's low. If they succeed, the decline will continue with a target at a minimum on September 3 in the area of 1.1026.
If the price fixes below the 1.1026 level, the decline may continue to the lower target zone of 1.0949 - 1.0924.
If the minimum is held on September 3, the price will try to work out an upward correction model, within which new sales of the instrument can be considered.