EUR/USD saw a decline on Monday, extending losses from Friday and revisiting the 1.1030 region as the US Dollar (USD) continued to show strength. The Greenback’s bullish momentum was supported by mixed US labour market data, which tempered expectations for a large rate cut by the Federal Reserve later this month.
Investors are closely watching for signals regarding the size of the anticipated rate cut by the Fed, following recent comments from Fed officials hinting at a possible easing cycle starting at the September 18 meeting. The upcoming US Consumer Price Index (CPI) report will be crucial in determining the Fed’s next move, with a 73% probability of a 25 bps rate cut in September according to the CME Group’s FedWatch Tool.
On the other side, the European Central Bank (ECB) is facing internal divisions regarding the need for rate cuts, with some officials concerned about a possible recession while others focus on inflationary pressures. Lower-than-expected inflation data in Germany and the Eurozone could influence the ECB’s decision at the September 12 meeting.
Looking ahead, if the Fed implements more rate cuts, the policy gap between the Fed and ECB could narrow, potentially benefiting EUR/USD in the medium to long term. However, the long-term outlook favors the US economy over the European economy, which could limit sustained weakness in the dollar.
Speculators have increased their net long positions in the Euro while commercial traders have raised their net short positions, indicating a mixed sentiment towards the currency pair. The technical outlook suggests a potential challenge of the 1.1201 resistance level, with support at 1.1026 and the critical 200-day SMA at 1.0857.
Overall, the EUR/USD pair remains influenced by central bank policies, economic data releases, and market sentiment, making it a key pair to watch for forex traders and investors.
EUR/USD Short-Term Technical Outlook
The EUR/USD pair is expected to test the 1.1201 resistance level, with support at 1.1026 and the 200-day SMA at 1.0857. The four-hour chart shows resistance at 1.1190 and support at 1.0997, indicating a potential continuation of the pair’s rising trend.