FOREX Fundamental analysis for EUR/USD on September 19, 2024
It was a truly innovative step! In three of the last six policy easing cycles, the Fed cut rates by 50 basis points at the beginning of monetary expansion cycles — in 2001, 2007 and 2020, when the US economy was clearly showing weakness. However, now, except for Donald Trump, no one is talking about problems in the economy. Jerome Powell sees no reason to worry about the recession. The Fed seems to have taken out "insurance" in case of a slowdown in the labor market, which surprised traders.
How are the markets reacting? At first, the yield on Treasury bonds fell in response to the rate cut to 5%, but then began to rise again, pulling the dollar with it. Higher yields indicate that the economy remains stable, and it is not worth expecting a serious easing of monetary policy. At the same time, the FOMC forecast assumes two additional rate cuts of 25 bps by the end of the year or one by 50 bps, and derivative financial instruments now estimate a total reduction of 70 bps.
The modest drop in stock indexes suggests that markets are skeptical about Powell's statements about the good economic situation. The recession is still a concern for market participants. The reaction of the stock market could be a manifestation of the principle of "buy on rumors, sell on facts." Investors were waiting for a 50 bps rate cut, but after the announcement of the results of the FOMC meeting, they began to take profits, which led to an increase in the volatility of currency pairs.
The aggressive start of the Fed's monetary expansion cycle has given other Central Banks the opportunity to start easing policy too. However, a massive reversal on the "dovish" course, although good news for the global economy, will have an impact later. In the short term, this may negatively affect the currencies of US competitors, while the dollar will be able to switch to other topics, such as the presidential election or the weakness of foreign economies.
EUR/USD experienced sharp fluctuations that led to losses for traders who ignored deposit protection rules. After the market calmed down, we were able to open short positions at 1.1155. We will hold sales, keeping an eye on the key level of 1.1125. The market digests the new data and comes to its senses.
EUR/USD Technical analysis
Yesterday, at the Fed's interest rate decision, EUR/USD showed a false breakdown of the resistance area 1.1140 - 1.1128. Then the pair began to decline, and the first sales target in the area of 1.1071 was achieved. Today, the quotes have once again adjusted to the resistance area.
If a sell signal appears near this zone, it will be possible to open a short position with the first target at 1.1071. When the price breaks through and fixes below 1.1071, the next target becomes the 1.1002 mark.
If the resistance area is broken up and the American trading session closes higher, then the short-term trend of EUR/USD will change to an upward one. In this case, starting tomorrow, it will be possible to consider buying the pair with a target in the upper Target zone of 1.1279 - 1.1254.