EUR/USD Bears to Target Key Support Breach as ECB Doves Take Over
2024.09.03 04:00
With Labor Day now behind us, traders are gearing up for a busy September filled with macro data and key events that could stir up market volatility.
Central bank meetings this month are set to drive action in the forex market. Both the European Central Bank and the Fed are expected to cut interest rates, but the Fed may take a less dovish stance compared to the ECB.
The Fed’s next move—whether a 25 or 50 basis point cut—will depend heavily on upcoming U.S. data, which sparked a major sell-off in equity markets earlier in August.
As the pair nears a key support level, the differing dovishness of these central banks, coupled with strength, is likely to dictate the pair’s next moves.
The Labor Market and PMIs Set the Tone for This Week’s Trading
With last month’s strong market reaction to labor market data and PMIs in mind, investors should stay alert as another round of these reports hits this week.
First up are the industrial and services sector figures, with is expected to edge up while is poised to see a modest decline.
If there are no major surprises with this data, the direction of the EUR/USD pair will likely be influenced by the U.S. labor market data.
Early forecasts suggest a pause in the negative trends for both the and . If this consensus holds, it could increase the odds of a smaller rate cut by the Fed.
ECB’s Fight Against Inflation Over?
data released last week from the Eurozone confirmed that the ECB is nearing its 2% target. The latest reading of 2.2% marks the lowest inflation rate in three years.
is seeing a similar trend, with disinflation advancing even more rapidly. According to July’s data, the price change rate slowed to 1.9% compared to forecasts of 2.1% y/y and the previous reading of 2.3% y/y.
With inflation data shaping up this way and growth hovering around 0% for the entire Eurozone, the ECB has little choice but to continue its rate-cutting cycle.
EUR/USD – The Correction Continues
The expectation of a modest initial rate cut by the Fed remains the main driver behind the corrective move in the EUR/USD pair. Sellers are currently testing the first significant support level around 1.1050.
In this zone, the market will gauge the strength of sellers’ resolve to push prices lower. A breakout here could target the 1.0950 support area and the accelerated uptrend line.
However, a strong demand reaction might lead to another attempt to challenge the key resistance at 1.12, recently defended by the market.
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