- EUR/USD may have reached too high, too speedy during the mid-week bounce.
- The ECB’s rate cut proved fleeting as markets turned to the Fed.
- Investors are jockeying for position as the interest rate market considers a possible 50 basis point cut in interest rates by the Federal Reserve.
EUR/USD retraced to the 1.1100 level on Friday before market forces rebounded on the euro and brought Fiber back to the day’s opening bids. The pair failed to quickly regain technical ground after Wednesday’s bullish turn, and the pair remains subdued as investors turn to the Federal Reserve’s (Fed) upcoming interest rate call next week.
The European Central Bank (ECB) lowered its main refinancing rate to 3.65% on Thursday morning from 4.25%, cutting its main refinancing rate by 60 basis points. The move helped spark a short-lived rally in the euro, but the momentum has already faded as expectations of a Fed rate cut continue to dominate global market sentiment. According to CME’s FedWatch Tool, rates traders are pricing in a 45% chance of an initial 50 basis point rate cut by the Fed when the U.S. central bank meets to make a rate decision on September 18.
The University of Michigan’s consumer sentiment index rose to 69.0 in September, hitting a four-month high, as surveyed consumers’ outlook for the U.S. economy slowly improves after months of withering economic expectations. The rise in the UoM survey helped anchor expectations for interest rate cuts next week, even though the UoM also reported a rise in consumers’ five-year inflation expectations to 3.1% in September from 3.0% previously.
The US export and import price indexes also fell more than expected in August, with the export price index posting a decline of -0.7% compared with the expected -0.1%, reversing the previous month’s 0.5% as inflationary pressures appear to be easing in the terms of trade. The import price index contracted 0.3% month-on-month in August, below the expected -0.2% and down from the previous period’s 0.1%.
EUR/USD Price Forecast
Despite a short-term decline from late-August 13-month highs around 1.1200, near-term pressure from fiber bidders is facing sedate headwinds, with the pair refusing to fall back to the 50-day exponential moving average (EMA) at 1.0984.
