FOREX Fundamental analysis for EUR/USD on September 5, 2024
The United States is facing impending economic difficulties. The number of open vacancies has decreased to a minimum in early 2021, the number of layoffs has peaked over the past year and a half, the foreign trade deficit is growing, and the manufacturing sector has remained in the recession zone below the 50 level for the fifth month in a row. Also, according to the Beige Book, the economy is showing signs of stagnation. Against this background, the markets demand that the Fed ease monetary policy, which supports the growth of the EURUSD.
The smell of recession is in the air again, which is confirmed by the yield curve coming out of inversion, a harbinger of the economic downturn in the United States.
The futures market expects the Fed to significantly ease in 2024 — by almost 110 basis points. Since the beginning of autumn, the chances of a 0.5% rate cut in September have increased from 30% to 45%. The weakening of the labor market increases the likelihood that the Fed will begin a cycle of aggressive monetary easing, and the first step may be by 50 basis points, which may not be the last major reduction.
The increase in demands for easing the Fed's policy seems logical, but officials themselves remain calm. The President of the Federal Reserve Bank of Atlanta, Rafael Bostic, believes that now is the moment of balance between stable prices and maximum employment. However, the Fed must remain vigilant and do everything to reduce economic risks.
Experts interviewed by Reuters believe that the Fed will cut the rate by 25 basis points at each of the three remaining FOMC meetings in 2024. This is less than the market expects, and as a result, the EURUSD rate may fall to 1.1 by November, and then rise again to 1.11 by the end of February and to 1.12 a year later.
Thus, the Fed's decisions remain more unpredictable compared to the European Central Bank (ECB), where, according to forecasts, they will lower the deposit rate in September and carry out another 2-3 acts of easing in 2024. This uncertainty in the Fed's actions leads to increased volatility in the US bond market
Although in theory this situation should favor the dollar as a defensive asset, the lack of data on the American labor market for August makes it difficult for traders to choose the right forex trading strategy. Ahead of the publication of important statistics, the risks of EURUSD consolidation in the range of 1.102–1.109 or 1.104–1.111 are growing. In such a situation, it is reasonable either to stay out of the market or sell the pair on growth.
EUR/USD Technical analysis
Yesterday, EUR/USD quotes went into an upward correction. Today, the corrective movement is likely to continue with a target in the resistance area 1.1118 - 1.1110. After testing this zone, we suggest considering new sales of the instrument with the first target at 1.1072 and with a view to 1.1026. If the price is fixed below the 1.1026 level, the sellers' next target will be the lower target zone of 1.0949 - 1.0924.
An alternative option involves the growth of the pair with a subsequent breakthrough of the resistance area. In this case, the correction will continue to the trend boundary, which is located in the area of 1.1165 - 1.1152. After reaching this zone, we will also consider sales