The Federal Reserve’s Bold Move
The Federal Reserve made a significant move by cutting the benchmark rate by 50 basis points, signaling the start of a new monetary policy cycle. This decision had a direct impact on the US Dollar, causing it to fall sharply initially.
- The rate cut was made to support the economy and bring inflation levels closer to the Fed’s target of around 2%.
- The Federal Open Market Committee (FOMC) is anticipating further rate cuts this year and in the following years to reach a terminal rate of 2.9%.
- Chair Jerome Powell emphasized that future decisions will depend on macroeconomic data and will be made meeting by meeting.
Implications for Investors
The Fed’s decision to maintain rates at record highs for longer posed a significant risk for economic growth. However, the aggressive rate cut is expected to help the US economy avoid a recession.
- The easing government bond yields indicate confidence in a potential economic recovery.
- Despite the Fed’s actions, it is still favorable to hold onto the US Dollar over the Euro.
Europe’s Economic Challenges
European data continues to disappoint, with the German ZEW Survey showing a sharp contraction in Economic Sentiment. The Eurozone also reported a rise in the Harmonized Index of Consumer Prices (HICP) in August.
- Germany’s assessment of the current economic situation worsened, indicating ongoing challenges.
- The US Retail Sales data for August showed a slight increase, beating expectations.
Upcoming Economic Indicators
Investors will be closely watching the upcoming economic indicators, including the Purchasing Managers Indexes (PMIs) for European economies and the US, as well as the GDP and inflation data for the US.
- Market expectations for a rate cut in November will be influenced by the August Personal Consumption Expenditures (PCE) Price Index.
- Divergences in the inflation figure may lead to speculation about further rate cuts by the Fed.
Technical Analysis of EUR/USD
The EUR/USD pair is currently hovering around the 1.1200 mark, with buyers aiming for higher highs. Technical indicators suggest that buyers are in control, with support levels at 1.1090 and 1.1050.
- If the pair breaks above 1.1200, it could target levels at 1.1240 and 1.1300, with a longer-term goal of 1.1470.
- The daily and weekly charts indicate bullish momentum, despite some retracement in the short term.
Overall, the current economic landscape, especially the Fed’s rate cut and upcoming economic data, will have a significant impact on market movements and investor sentiment in the coming weeks.