FXNEWSTODAY – •The market is awaiting strong indications regarding a potential European interest rate cut in September.
•Expectations are rising that the interest rate differential between Europe and the United States will decrease.
•Joe Biden’s withdrawal from the presidential race is putting pressure on the US dollar.
The euro increased in the European market on Monday against a basket of global currencies, entering the positive zone for the first time in three days against the US dollar, as it resumed its upward trend that had been interrupted for two days due to corrections and profit-taking from a four-month high. This comes amid optimistic projections approaching the psychological level of $1.1.
These projections are supported by increasing hopes that the interest rate differential between Europe and the US will decrease next September, alongside negative pressure on the US dollar following President Joe Biden’s decision to withdraw from the upcoming presidential elections in November.
Price overview
•The euro’s exchange rate today: it rose by 0.2% to ($1.0903), up from the opening price of ($1.0881), with a recorded low of ($1.0879).
The euro concluded Friday’s trading down 0.15% against the dollar, marking its second consecutive daily loss, as corrections and profit-taking persisted from a four-month high of $1.0948.
Positive sentiment
Currently, a positive sentiment prevails in the foreign exchange markets, as last week’s global IT outage unsettled markets and spurred investors to favor the US dollar as a safe haven over the euro.
With the issue quickly resolved and the global information environment now stabilizing, we may observe an improvement in investor sentiment that could support the EUR/USD once more.
Bullish outlook
The euro reached a peak of 1.0948 against the dollar last week but has since dipped to 1.0884 amid profit-taking and risk aversion, seeking immediate stability. One analyst believes the euro could rebound from this point.
•City Index analyst Fawad Rezaghazadeh stated: “The stability of EUR/USD above the 21- and 200-day moving averages indicates an upward trend. Although recent price movements suggest otherwise, the slight pullback over the past two days follows a strong rally and should not be overlooked.”
•Qazadeh added that this pullback is likely a rebound within the underlying upward trend, with bullish setups benefiting from supportive trading ideas.
•Qazadeh further explained: Short-term resistance is around 1.0900, followed by 1.0945, and possibly $1.1 if the pair exceeds last week’s peak.
European Central Bank
In line with expectations, the European Central Bank maintained interest rates last week, with President Christine Lagarde stating that the bank’s next decision on September 12 is “open to all possibilities,” emphasizing that it has not yet declared victory over the surge in inflation resulting from the Corona pandemic.
European interest
The chances of the European Central Bank cutting rates at its September meeting remain below 50%, awaiting additional data to show the growth and inflation trends in the Eurozone over the upcoming period.
US Interest Rates
Less aggressive comments from Federal Reserve officials last week led to an increase in the pricing for a 25-bps US interest rate cut in September, rising from 94% to 98%, and a cut in November from 98% to 100%.
Interest rate gap
The current interest rate gap between Europe and the United States stands at 125 basis points in favor of US rates. Given the existing odds for European and US interest rates, this gap is expected to narrow to 100 basis points in September.
Joe Biden’s withdrawal
After US President Joe Biden announced on Sunday his withdrawal from the presidential race, the “Trump trade” theory, which is often seen as supportive of the US dollar, has weakened.
US Vice President Kamala Harris is likely to be the Democratic Party’s nominee in the November election, and polls indicate she has a better chance of defeating Trump.
EUR/USD Trends: Market Awaits European Interest Rate Decisions in September
Current Market Overview
EUR/USD has shown a positive shift in Monday trading, demonstrating an increase for the first time in three days, resuming its ascent following a brief period characterized by profit-taking and correction after reaching a four-month high. As of today, the euro is trading at $1.0903, marking a rise of 0.2% from an opening of $1.0881.
Key Drivers Behind the Euro’s Performance
Several factors are influencing the EUR/USD exchange rate, including:
- Potential interest rate cuts in Europe expected this September, which could help close the gap between European and US interest rates.
- The political landscape in the US, highlighted by President Joe Biden’s recent withdrawal from the presidential race, which is putting pressure on the US dollar.
- Positive market sentiments following the quick recovery from a recent global IT outage that initially supported the dollar as a safe haven.
Price Overview of EUR/USD
| Trading Day | Opening Price | Current Price | Lowest Price | Change (%) |
|---|---|---|---|---|
| Monday | 1.0881 | 1.0903 | 1.0879 | 0.2% |
| Friday | N/A | N/A | N/A | -0.15% |
Market Sentiment and Technical Indicators
The current sentiment in the foreign exchange market leans towards optimism as the glitch that caused a global IT outage has been resolved. As a result, investors are anticipated to shift their focus back to the euro, potentially driving the EUR/USD pair higher.
Technical Analysis
An analysis by City Index’s Fawad Rezaghazadeh identifies significant indicators for the euro:
- The EUR/USD pair remains stable above the crucial 21-day and 200-day moving averages, indicating an underlying uptrend.
- A recent pullback is viewed as a temporary correction rather than a trend reversal, suggesting a potential rebound.
- Short-term resistance levels to watch are around 1.0900 and 1.0945, with a significant psychological barrier at $1.1.
European Central Bank (ECB) Expected Decisions
In its last meeting, the ECB decided to maintain current interest rates while suggesting that its next move on September 12 remains “open to all possibilities.” The ECB acknowledges the ongoing challenges posed by high inflation rates exacerbated by post-pandemic recovery demands.
Interest Rate Outlook
The anticipation around possible rate cuts by the ECB remains cautious, with less than 50% chance of cuts in September pending economic data. Simultaneously, US interest rates are expected to be adjusted, with recent comments from the Federal Reserve indicating a rising probability of a 25-bps cut this September.
Comparative Interest Rate Gaps
Currently, the interest rate difference between the US and Europe stands at 125 basis points favoring US rates. As both economies adjust their monetary policies, this gap is likely to decrease, enhancing the euro’s potential strength.
Political Factors Impacting the US Dollar
President Joe Biden’s recent announcement regarding his withdrawal from the presidential race has generated significant market reaction. This shift weakens the perception of the “Trump trade,” historically supportive of dollar strength. As discussions around Vice President Kamala Harris potentially becoming the Democratic nominee gain traction, market consensus leans towards her having a stronger election position against Trump.
Practical Tips for Traders
Traders looking to navigate the current Forex landscape may consider the following tips:
- Monitor key economic indicators from both the US and Europe leading to September to gauge the likelihood of interest rate changes.
- Utilize technical analysis tools to identify entry and exit points around critical resistance levels.
- Stay updated on political developments as they may drive volatility in the USD.
Final Considerations
With the market in flux and several influencing factors at play, maintaining a strategy that incorporates both technical and fundamental analysis will be essential for any trader looking to capitalize on the movements of the EUR/USD exchange rate.
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