FOREX Fundamental analysis for EUR/USD on October 15, 2024
If the Federal Reserve surprised financial markets by lowering the federal funds rate by 50 basis points, then why shouldn't the European Central Bank (ECB) follow suit? Before the Fed meeting in September, few expected such a drastic step, and now many analysts consider the reduction of the ECB deposit rate from 3.5% to 3.25% to be a practically solved issue. However, rumors that the ECB may make an even more significant reduction caused the EUR/USD exchange rate to fall below the 1.09 level.
In the decade leading up to the pandemic, which is often called "lost" for Europe, the ECB made tremendous efforts to deal with deflation. For 93 of the 120 months to July 2021, inflation remained below the 2% target. The ECB was forced to introduce unconventional measures such as quantitative easing programs and negative interest rates.
The COVID-19 pandemic, despite all its negative consequences, has given the ECB the opportunity to rectify the situation. Gaps in supply chains led to an increase in inflation above 10%, which allowed the Central Bank to raise loan rates to 4%. The ECB has already lowered rates twice in 2024, but the accelerating return to deflation indicates that these steps may not be enough.
The economic weakness of the Eurozone is obvious, and the situation could worsen if Donald Trump becomes president of the United States again. His trade wars will hit the export-oriented economies of the Euroblock, and his intention to stop supporting Ukraine will lead to the fact that Europe will have to finance assistance to Kiev from its own resources.
Europe must avoid a return to deflation, and accelerating monetary easing, including a 50 basis point reduction in deposit rates, may be the solution expected on October 17th.
At the same time, the Fed intends to act more cautiously. As Christopher Waller said, after decisive measures in September, the Central Bank should lower rates more slowly. If inflation falls below the 2% target and the labor market weakens, easing may accelerate. But if demand or unexpected economic factors turn out to be stronger, the Fed may suspend expansion.
Rumors of a possible pause in the federal funds rate cut had the same effect on the markets as the discussion of the ECB rate cut by half a percent in October. The EUR/USD pair continues to develop downward dynamics, and the bulls do not yet see an opportunity for a counteroffensive. Until the ECB's decision, the euro is likely to remain under pressure.
In the current situation, it is recommended to keep short positions open above 1.12 and from 1.1045, as well as strengthen them on upward pullbacks.
EUR/USD Technical analysis
EUR/USD continues to decline within the framework of a short-term downtrend. The main target of sellers is the "golden zone" 1.0878 - 1.0869. After working out this area, an upward correction may develop. If the correction starts from current prices, then it will be possible to wait for the pair in the resistance areas 1.0993 - 1.0984 or 1.1046 - 1.1032. After reaching these zones, we will consider new sales with a target at yesterday's low of 1.0889.