Created on September 18, 2024

• Ahead of this week’s crucial event for the foreign exchange markets, the EUR/USD is hovering bullishly around the 1.1130 resistance level.
• The decisions of the US Federal Reserve, the tone of its policy statement, and the comments of its chairman, Jerome Powell, will determine the fate of the current upward rebound. 

What is expected from the US Federal Reserve today? 

The Federal Reserve cuts interest rates for the first time in 4 years . Today, the US Federal Reserve is expected to cut the federal funds rate, which is currently at a 23-year high of 5.25% – 5.50%, at its meeting in September 2024. Decisively, this will be the first rate cut since March 2020. While the size of the cut remains uncertain, there is growing discussion of a possible cut of 50 basis points, although the Fed typically implements cuts of 25 basis points. The US headline annual inflation rate slowed for the fifth straight month to 2.5% in August, the lowest since February 2021, while the annual core inflation rate hit a more than three-year low of 3.2%. The annual core personal spending rate, the Fed’s preferred measure of core inflation, remained at 2.6% for the third straight month in July. In addition, the unemployment rate rose to 4.2% in August and monthly payroll growth has slowed this year. 

The US quarterly economic outlook and interest rates are also on the Fed’s agenda. Concurrently, Traders have priced in more than a full percentage point of cuts this year. 

What is the expected price of the euro dollar in the coming days? 

In this regard, Société Generale Bank says that the euro price has the fuel needed to reach the 1.12 resistance. The euro exchange rate against the US dollar (EUR/USD) started the new week’s trading with fresh momentum as the market adjusts to the increasing possibility of a 50-basis point cut in US interest rates by the Federal Reserve on Wednesday. 

This has led to a decline in US Treasury yields, narrowing the gap between US and European government bonds, leading to a rise in the EUR/USD pair. However, an analysis from société Generale says the gap has not yet closed and “sets the stage for further gains this week.” Kate Judd, head of FX foreign exchange analysis at Société Generale, says, “A return to the 1.12 resistance, a post-Jackson Hole high, is on the cards if the Fed cuts 50 basis points on Wednesday.” 

However, a smaller cut of 25 basis points would be relatively disappointing compared to market expectations. Ultimately, the analyst believes that this could lead to profit-taking on the euro against the US dollar. 

EUR/USD Technical analysis and forecast: 

From a technical perspective, the setup for the EUR/USD currency pair is constructive. Based on the performance on the daily chart attached, the 1.12 resistance will remain the main hurdle going forward. The EUR/USD pair has broken a large symmetrical triangle and extended its upward move. 

Overall, financial markets now see a 75% chance of a 50 basis point US interest rate cut by the Federal Reserve on Wednesday, while a week ago, this was only around 30%. The rise in the probability of a 50-basis point rate cut came following media reports suggesting that a 50-basis point rate cut is possible. However, since the report is uncertain, there is a real risk of disappointment. If the rate is cut by 25 basis points, the dollar could recover, and the EUR/USD pair would decline sharply. 

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