The EUR/USD started the week with an upward trend, trading around 1.1170. This rise was driven by the weakening U.S. dollar, due to growing expectations that the Federal Reserve will continue its easing policy in November, with the possibility of another aggressive interest rate cut.
On Friday, the U.S. core personal consumption expenditure (PCE) price index for August rose by 0.1% month-over-month, falling short of market expectations for a 0.2% increase and also lower than last month’s 0.2% rise. This result, aligned with Fed estimates that inflation continues to ease, reinforces the likelihood of an aggressive rate-cutting cycle by the Federal Reserve. Meanwhile, core CPI increased by 2.7%, matching estimates and slightly higher than the previous reading of 2.6%.
CME’s FedWatch tool indicates that markets now see a 42.9% probability of a 25 basis point rate cut by the Fed in November, while the likelihood of a 50 basis point cut has risen to 57.1%, up from 50.4% a week earlier.
St. Louis Fed President Alberto Musalem, according to the Financial Times, mentioned on Friday that the Fed should start cutting interest rates “gradually” after the larger-than-usual half-point cut at the September meeting. Musalem acknowledged the potential for the economy to weaken more than expected, stating, “If that were the case, then a faster pace of rate cuts might be appropriate.”
Lower-than-expected inflation in France and Spain has also increased expectations that the European Central Bank (ECB) will implement another rate cut in October. If this happens, it would be the ECB’s third cut in its monetary easing cycle, which began in June. The ECB resumed rate cuts in September after pausing in July.
In addition, key economic data from Germany, including preliminary consumer price index (CPI) figures for September, is scheduled for release on Monday.
EUR/USD Daily Technical Analysis for September 30th:
The EUR/USD has stabilized within a 100-pip range since last Tuesday, awaiting further signals on interest rates from both the Fed and the ECB. The currency pair remains steady, holding the breakout from an ascending channel chart pattern formed on the daily timeframe near the psychological support of 1.1000. The 20-day Exponential Moving Average (EMA), currently near 1.1110, suggests a short-term bullish trend. The 14-day Relative Strength Index (RSI), however, is below 60.00, indicating that momentum may be weakening.
On the upside, a break above the 1.1200 resistance level could lead to further appreciation toward the 1.1276 high reached in July 2023. On the downside, the psychological support at 1.1000 and the July 17 peak near 1.0950 will serve as key support levels.
