The Rise of EUR/USD: A Comprehensive Analysis
EUR/USD Surges to Three-Week Highs
- EUR/USD reached fresh highs near 1.0915, leaving behind Friday’s pullback.
- The US Dollar weakened, testing two-week lows and falling below the 104.00 support level.
- All eyes are on the upcoming US election, impacting market sentiment and direction.
EUR/USD has started the trading week on a positive note, breaking above the critical 200-day Simple Moving Average (SMA) near 1.0870 and pushing towards higher levels in the 1.0910-1.0915 range. Meanwhile, the US Dollar Index (DXY) retreated to two-week lows, signaling a lack of clear direction in US and German yields.
Monetary Policy Factors
- The Federal Reserve (Fed) is expected to announce a 25-basis-point rate cut, reflecting disinflationary pressures and labor market challenges.
- The European Central Bank (ECB) recently lowered the Deposit Facility Rate to 3.25% and is cautiously monitoring economic data for future rate decisions.
ECB officials hold varying opinions on additional rate cuts, with President Christine Lagarde projecting eurozone inflation to reach the 2% target by 2025, while Governing Council member Fabio Panetta advocates for timely rate adjustments to prevent excessive drops in inflation. ECB board member Isabel Schnabel supports a gradual approach to monetary policy, emphasizing the likelihood of inflation staying above 2%.
Market Impact and Outlook
- The US economy’s outperformance may sustain USD strength in the short to medium term.
- A potential Trump victory in the US election could further bolster the Greenback.
- Speculative net shorts in the EUR/USD pair have increased, indicating market sentiment towards the European currency.
As the Fed and ECB assess their next moves, broader economic conditions will likely influence EUR/USD trajectory. Potential gains could push the pair towards key resistance levels, while downside support remains crucial for market stability. Clearing the 200-day SMA could signal a positive outlook for the pair.
EUR/USD Short-Term Technical Analysis
Extra gains could propel EUR/USD towards recent highs before facing resistance at key SMAs. Support levels are identified to prevent significant downside movement. The four-hour chart suggests a continuation of the rally, with specific levels to watch for potential reversals.