FOREX Fundamental analysis for EUR/USD on September 17, 2024
Is the rate half a point or a quarter? This is the main issue of concern to investors around the world. Regarding the prospects for the course of monetary policy, financial markets have not been so divided since 2007. The chances of a 50 basis point rate cut to 5% at the Fed meeting on September 17-18 increased from 17% to 69%, which led to a strengthening of EUR/USD to 1.114. However, US retail sales data for August may radically change the situation.
NatAlliance believes that the Fed should have cut the rate in the summer, and believes that in September the reduction will be by 50 basis points. If the retail sales data disappoints, it may prompt the Fed to take more aggressive measures. Barclays, on the contrary, expects that the real figures will exceed the forecast of 0.2%, which will lead to a 25 basis point rate cut and a 1% increase in the dollar index relative to the forex currency indices.
Attention to retail sales data is due to the fact that they reflect the state of consumer demand in the United States, which affects the Fed's decisions. The economic situation will be a key argument in discussing the size of the rate cut. If the majority of FOMC members believe that inflation has been defeated and the labor market is weakening, the rate may be reduced by 50 basis points. If they are confident in the stability of the economy, they can expect a decrease of only 25 basis points to 5.25%.
In this case, the Fed's forecasts may include another 50 basis points before the end of the year, which is less than market expectations of 75 basis points. In this scenario, Jerome Powell will return to "dovish" rhetoric, arguing that the Fed can accelerate if necessary.
If the Fed cuts rates by 50 basis points at once, the new estimate will be at the level of market expectations, and Powell will have to restrain investor optimism for EUR/USD. In both cases, a sharp spike in the volatility of currency pairs is likely.
However, the market must first evaluate the retail sales data. Although investors understand that one report is not enough for drastic actions by the Fed. Nevertheless, weak data may push EUR/USD to 1.1155, but failure to hold at this level will be a signal for sales. Strong data will contribute to the formation of short positions.