FOREX Fundamental analysis for EUR/USD on September 26, 2024
After a surge in risky assets against the background of Chinese monetary incentives and the return of inflation concerns in the US Treasury bond market, the position of the EUR/USD bulls weakened. Although the pair reached its highest since July 2023, it failed to stay above the 1.12 level. Investors are still assessing the impact of China's actions and are afraid that an active easing of the Fed's policy in the context of a strong US economy could lead to an increase in inflation.
U.S. Treasury bond yields have risen in five of the last seven trading days, partly due to new auctions. The initial placement of five-year securities worth $70 billion marked the lowest yields since April 2023, and similar expectations apply to seven-year securities.
Many investors are taking long positions on Treasury bonds. The strong US economy and the Fed's proactive actions aimed at stabilizing the labor market increase the risks of renewed inflation. This may lead to a slower easing of monetary policy than markets expect, which contributes to the strengthening of the dollar in forex currency trading. Unsurprisingly, EUR/USD failed to stay above 1.12.
After active incentives from the People's Bank of China, a "hangover" came to the market. ANZ experts note that the new package of Chinese measures, amounting to 1-2 trillion yuan, looks much more modest compared to 14 trillion yuan in 2009. Current incentives are hardly a panacea, and their effectiveness will not appear immediately — it takes time to restore the economy.
Optimism about China turned out to be exaggerated, and fears about a resurgence of inflation in the United States are forcing investors to return to the dollar and reconsider some aspects of forex hedging. At the same time, the time gap between the reduction of rates and the recovery of the global economy calls into question the expediency of purchases of pro-cyclical currencies, despite the positive forecasts from the OECD.
The OECD has raised its forecast for global GDP growth to 3.2%, slightly higher than the May forecast of 3.1% and significantly higher than the estimate of 2.7% at the end of 2023. The organization believes that lower rates, cheaper oil and rising real wages will support the global economy.
By 2025, US GDP growth is projected to slow from 2.6% to 1.6%, and in Europe it will accelerate from 0.7% to 1.3%. The Fed rate may decrease from 5% to 3.5%, and the ECB rate from 3.5% to 2.25%. These indicators indicate a continuation of the upward trend in EUR/USD. However, the facts may not match the forecasts. At the moment, September data on the US labor market will be key to determining the direction of the pair. So far, the chances of consolidation are high, and a breakdown down to the $1,111 level will be a signal for new sales of the pair.
EUR/USD Technical analysis
Yesterday, EUR/USD updated the maximum on September 18. Thus, purchases from support 1.1105 - 1.1096 were successfully implemented. After updating the maximum, the price went into a downward correction and reached the support area 1.1130 - 1.1121. This zone is held by buyers, so purchases from it can be considered with the first target at 1.1167 and further at 1.1214.
If the support area 1.1130 - 1.1121 is broken down during trading, then we will wait for the pair in the support area 1.1088 - 1.1075. This zone is the boundary of a short-term uptrend. Therefore, from here we will also look for entry into long positions.