FOREX Fundamental analysis for EUR/USD on October 9, 2024
The Fed has taken a historic step in an effort to provide a "soft landing" for the US economy. In September, the Central Bank sharply lowered the federal funds rate, hoping for a slowdown in inflation (CPI and PCE) to the target level of 2% amid a weakening labor market. However, recent data showed that the US economy is still stable, and with a strong economy it is difficult to keep inflation low, and perhaps the Fed made a mistake. This can result in significant losses for bull traders on EURUSD.
Mistakes happen to everyone, but they are not uncommon for the Fed. So, at the end of 2023, the Fed made a miscalculation when, reacting to a slowdown in inflation, it announced an upcoming rate cut. However, inflation went up again in the first quarter, which forced the Central Bank to adjust its position and led to a strengthening of the dollar in forex currency trading.
In the summer and autumn, the Fed focused on the labor market, trying to prevent a spike in unemployment. But the US economy continued to show resilience and strength, which led to a sharp drop in the EURUSD.
Investors are gradually realizing that hopes for a 150 basis point reduction in the federal funds rate by the end of 2025 have been exaggerated. In 1995, the Fed also sought a soft landing, planning to cut the rate by 200 bps, but actually managed to reduce it by only 75 bps.
The Fed's decision in September to ease policy by lowering the rate to 5% still keeps pressure on inflation, although not as much as at 5.5%.
The ECB, in turn, faces other challenges. European inflation has already fallen below 2%, and weak business activity indicates serious difficulties in the Eurozone economy.
According to a Reuters poll, 90% of experts (70 out of 75) predict that the ECB will reduce the deposit rate by 25 bps to 3.25% at the October 17 meeting. A month ago, there were only 12% of such expectations. In addition, most analysts predict another act of monetary expansion in December and a further rate cut to 2.5% by March 2025. This is a more aggressive path than previously expected, but in line with market sentiment.
In other words, the Fed is likely to be more cautious, and the ECB will be more decisive, which creates prerequisites for a decrease in the EURUSD. The possible growth of the pair on the publication of the minutes of the Fed meeting and data on inflation in the United States will be used to sell the asset in the direction of $1,085.
EUR/USD Technical analysis
EUR/USD is trying to break through the lower Target zone of 1.0962 - 1.0936. If the sellers succeed, the pair may go down to the Golden zone of 1.0878 - 1.0869. Large sales are planned to be fixed in this area, and the asset may go into an upward correction.
If it is not possible to break through the Target zone during today's trading, then a corrective growth towards the resistance area 1.1043 - 1.1035 will begin. After testing this zone, we will look for entry into new sales with the first target in the area at 1.0997. The second target is 1.0951.