- Summary:
- The EURUSD has been trading downwards in the last two sessions, and with the ECB set to slash interest rates this week, the pressure is on.
EURUSD extended its decline on Tuesday, going down by 0.06 percent and trading at 1.1028 at the time of writing. With that move, EURUSD is on course to register the third successive daily gain for the first time in September, signaling the strong impact brought by Fed interest rate expectations.
The Federal Reserve is expected to announce new interest rates on September 18, and 73% of traders have bet on 25 basis points cut, as per the CME FedWatch tool. While that should typically exert pressure on the US dollar, the DXY has risen in the last two sessions as the focus shifts on a turnaround by the US economy as opposed to a tunnel view of interest rate cuts.
Meanwhile, the European Central Bank (ECB) is expected to cut interest rates by a similar margin as the Fed in its policy meeting on Thursday, exerting a greater near-term pressure on the euro. Also, the euro faces headwinds after the Eurozone’s largest economy printed out weak Industrial Production data last week. However, yields on benchmark 10-year US treasury bonds have declined to 3.697 percent as of this writing, easing the pressure on EURUSD.
FOMC member Michelle Bowman is scheduled to speak on Tuesday, but the market will likely ignore her comments and pay greater attention to Wednesday’s release of August Consumer Price Index (CPI) figures instead. With a near-certainty that the Fed will slash interest rates next week, the CPI figures will provide guidance on how deep the cuts could go.
EURUSD forecast
The momentum on EURUSD favours the downside, as shown by the RSI reading on the 30-minute chart. The downside will likely continue if resistance persists at the 1.1035 pivot mark, with the first support likely to be at 1.1028. However, extended control by the sellers will enable a breach of that mark to test 1.1025.
Conversely, moving above 1.1035 will see the bears hand over control to the bulls. In that case, the first barrier will likely be at 1.2040. However, extended bullish momentum beyond that point will strengthen movement past that mark to test the next resistance at 1.1045. Meanwhile, the downside narrative will be invalid at that point.
