FOREX Fundamental analysis for EUR/USD on October 8, 2024
Forex currency trading, as a rule, takes everything into account, and expectations of a reduction in the US federal funds rate by 150-200 basis points by the end of 2025 have already been incorporated into the dollar exchange rate. However, this scenario changed after the publication of the American labor market data. Prior to this report, the probability that the Fed would cut the rate by 50 basis points in November was estimated at 36%. A day later, the futures market has already ruled out such an option, and the probability of keeping the rate at 5% is now 14%. In such circumstances, the euro is falling against the dollar.
The beginning of 2024 turned out to be successful for the dollar: in January-July, the USD index increased by 5%. But then, when the U.S. economy began to show signs of slowing down, investors decided that the dollar would lose ground by the end of the year. However, these expectations were not fulfilled — EUR/USD only briefly rose above the 1.12 mark, after which it fell sharply. If the Fed's rate review continues in October, the pressure on the euro may increase.
Nordea analysts predict that by the end of 2024, EUR/USD will fall to 1.09, and by mid—2025 to 1.07, after which the euro may begin to strengthen. However, for this to happen, the global economy must overtake the American one, which is now unlikely. The eurozone is stagnating, Germany is on the verge of recession, and Chinese monetary stimulus will take time to have a noticeable effect. Investors, judging by the reaction of China's stock markets, expect more decisive steps.
Thus, the EUR/USD depreciation is due to the market's revision of the Fed's expected steps against the background of US employment data, as well as the return of the theme of "American exceptionalism" to the stage. The dollar may have new advantages. Donald Trump's victory in the presidential election could lead to new trade wars, supply chain disruptions and accelerated inflation around the world. The conflict between Israel and Iran could have similar consequences. In both cases, the Fed may suspend the process of lowering rates or even return to tightening monetary policy, which will strengthen the dollar's position among the forex currency indices.
Nevertheless, before the publication of the US inflation report, the EUR/USD bulls may launch a counterattack. Bloomberg experts expect consumer price growth to slow to 2.3%, which will create prerequisites for a Fed rate cut in November by 25 basis points and put pressure on the dollar. At the same time, the president of the Federal Reserve Bank of New York, John Williams, believes that the FOMC forecast for a 50 basis point rate cut in 2024 is a completely realistic scenario.
Probably, we are talking about the classic method of forex trading, when an asset is bought on rumors and sold upon the release of data. In this case, any short-term strengthening of EUR/USD to the level of 1.1-1.102 can be used as a selling opportunity.
EUR/USD Technical analysis
EUR/USD corrects the short-term downtrend. The probable target of the upward correction is the resistance area 1.1043 - 1.1035. After testing the target range, we will look for entry into new sales with the first target in the area of the 1.0997 level. The second potential target is the October 4th minimum at 1.0951.
If the Target zone 1.0962 - 1.0936 is broken down during trading and the price is fixed lower, then the next target for sales will be the Gold zone 1.0878 - 1.0869.