FOREX Fundamental analysis for EUR/USD on September 13, 2024
The market turned out to be adamant, and the dollar began to decline. The probability that the Fed will cut the interest rate by 50 basis points in September has increased from 13% to 45%. The chances of a large-scale monetary expansion increased after the release of data indicating a slowdown in inflation and a weak labor market in the United States. The ECB stimulated the strengthening of the euro against the dollar, and additional factors fueled the speeches of former head of the Federal Reserve Bank of New York William Dudley, who called on the Federal Reserve to act decisively, while expectations of a decrease in the growth rate of the PCE indicator in the United States also intensified.
Although recent news about falling unemployment, rising wages and core inflation could signal a return to previous scenarios indicating the stability of the economy and a possible new increase in inflation, the Fed still prefers to be cautious. The probability of a 25 basis point rate cut in September initially jumped to 87%, but then dropped back to 55%. Investors are alarmed by the increased number of applications for unemployment benefits and rising producer prices.
The August CPI and PPI inflation data show that the personal consumption Expenditure Index (PCE), which the Fed uses as a key indicator of inflation, may slow to 0.1%. This leaves room for a 50 basis point rate cut in September. Dudley is actively promoting this idea, arguing that given the weakness in the labor market, such a move would be justified.
However, the weakening of the dollar in forex currency trading is not only due to expectations of aggressive actions by the Fed. The ECB also lowered the deposit rate to 3.5%, but the head of the bank, Christine Lagarde, practically rejected the possibility of easing monetary policy in October. She stressed the dependence of the Central Bank on the general economic situation, but not on individual data. Although inflation may decrease in September, it is expected to start rising again by the end of the year.
These statements led to a revision of market expectations: the probability of further easing of the ECB's policy in October decreased from 40% to 20%, which allowed the euro to strengthen its position against the dollar.
The derivatives market suggests that the Fed may cut rates 10 times over the next 12 months, while the ECB may cut rates 7 times, which increases the likelihood of a stronger euro. However, the Fed is unlikely to start cutting rates by 50 basis points, fearing a market reaction, while the weakening of the Eurozone economy may force the ECB to accelerate monetary expansion. We maintain the previous methods of forex trading and consider it advisable to sell EUR/USD when strengthening to 1.1115-1.1125 or when the bulls are unable to hold the level of 1.1085.
EUR/USD Technical analysis
The EUR/USD quote has reached the resistance area (A) 1.1094 - 1.1086 today. The short-term trend remains downward, therefore, from zone (A) we will consider selling the pair with the first target of 1.1048 and the prospect of testing the minimum of September 11 -1.1002.
If buyers are able to break above the resistance area (A) during trading, then the corrective growth will continue to the resistance area (B) 1.1140 - 1.1128. This zone is the boundary of the trend, and here we will also look for entry into short positions.
To change the direction of the trend and switch to purchases, the pair needs to break through the level of 1.1140 and consolidate above.