FOREX Fundamental analysis for EUR/USD on September 25, 2024
The Fed took a significant step by cutting interest rates by 50 basis points in September, paving the way for massive economic stimulus. China was the first to respond to the Fed's actions, launching the most ambitious measures to support the economy since the pandemic. It seems that the People's Bank of China was waiting for this step from the Fed in order to avoid weakening the yuan, which could accelerate the outflow of capital from the country. Instead, the yuan strengthened against the US dollar to a 16-month high and, through currency correlation, pushed the EURUSD higher.
After a long wait, the Chinese Central Bank decided to respond to the slowdown in economic growth, as well as to the revision of GDP forecasts by analysts at Goldman Sachs and UBS. The rate was reduced from 2.3% to 2%, and reserve requirements were reduced by 0.5 percentage points. In addition, a 500 billion yuan fund was created to support the Chinese stock market. These steps, along with lower rates on short-term loans, create support for both China and Germany, which is closely linked to the Chinese economy.
Joachim Nagel, head of the Bundesbank, expressed hope for a gradual recovery of the German economy, considering the problems with China and high inflation as temporary factors. However, data on business activity and business climate from the IFO Institute indicate an approaching recession. According to insider information, the estimate of German GDP for the third quarter was lowered to 0.1%, which increases the likelihood of a technical recession.
Against this background, investors are demanding more decisiveness from the European Central Bank. The markets give about a 60% chance that the ECB will cut the rate by 25 basis points in October, lowering it to 3.25%. Acting quickly and not repeating the mistakes of 2021, when a later tightening of monetary policy led to high inflation, is the main market requirement for the European regulator.
Although the ECB's active actions may lead to a fall in the EURUSD, markets are waiting for more significant policy easing steps from the Fed. Lowering rates globally stimulates an increase in interest in risky assets, which supports pro-cyclical currencies, including the euro.
Expectations of an economic recovery contribute to the growth of the EURUSD. Long positions opened in the range of 1.108-1.11 after the publication of European PMI data were strengthened at 1.1145. We will keep buying and gradually increase them, focusing on the goals of 1.13 and 1.143.
EUR/USD Technical analysis
Following the results of yesterday's trading, the short-term upward trend of EUR/USD continued. The pair updated the maximum on September 18. Now the next target of buyers is the upper Target zone 1.1279 - 1.1254. We will consider the formation of new purchases on the correction to the support areas (A) 1.1114 - 1.1106 and (B) 1.1072 - 1.1060. The target mark of EUR/USD strengthening will be the maximum of today.
To change the direction of the pair's trend and sales, the bears need to break through the support of 1.1060 and consolidate below.