EUR/USD Price Analysis – Aug 09, 2024
Daily Price Outlook
During the European trading session, the EUR/USD currency pair failed to break its consolidating phase and remained sideways around the 1.0917 level, consolidating within the range of 1.0911 - 1.0929. However, the ECB is expected to deliver two more rate cuts this year.
This stance undermined the shared currency and contributed to the EUR/USD pair's subdued trend.
On the other hand, expectations for Federal Reserve rate cuts increased significantly following the weak US Nonfarm Payrolls (NFP) report for July, raising concerns about a potential recession.
However, these recession fears were tempered by lower-than-expected Initial Jobless Claims for the week ending August 2, which weakened the US dollar and may limit further losses in the EUR/USD pair.
Impact of Mixed Fed Rate Cut Expectations and Jobless Claims on EUR/USD
On the US front, the US Dollar Index (DXY) is trading around 103.00 after retreating from a high of 103.50.
This shift comes amid growing expectations for Federal Reserve rate cuts, spurred by a weak Nonfarm Payrolls (NFP) report for July, which heightened recession fears and triggered a global equity sell-off.
However, recent data on Initial Jobless Claims for the week ending August 2, which showed 233K claims versus the 240K estimate, suggests the labor market may be stronger than anticipated. This could provide support for the dollar.
Gennadiy Goldberg from TD Securities highlighted that the jobless claims data is positive, indicating that the labor market remains relatively strong despite the weaker payroll report.
According to the CME FedWatch tool, investors are now less certain about the size of potential Fed rate cuts in September, with a 54.5% chance of a 50 basis point cut, down from 74% a week earlier.
Therefore, the US Dollar Index’s pullback and mixed Fed rate cut expectations may lead to a modest rise in EUR/USD, as weaker dollar sentiment offsets potential support from positive jobless claims data.
Impact of ECB Rate Cut Expectations and Cautious Inflation Targets on EUR/USD
Conversely, the ECB is anticipated to implement two more rate cuts this year in response to the struggling Eurozone economy and its aim to achieve the 2% inflation target.
Despite this, ECB officials remain cautious and are not committing to a specific rate-cut schedule, acknowledging the challenging path to reaching their inflation goal.
Finnish ECB policymaker Olli Rehn emphasized that while inflation is easing, attaining the 2% target will be difficult.
He suggested that rate cuts could support the Eurozone’s fragile industrial sector and stimulate investment.
Rehn's remarks underscore the ECB's cautious stance and its focus on providing economic support amid uncertain conditions.
Hence, the expectations of further ECB rate cuts and a cautious approach to inflation could weaken the euro. This may lead to a rise in EUR/USD if the dollar remains under pressure from mixed Fed rate cut expectations and economic uncertainty.
EUR/USD - Technical Analysis
The EUR/USD pair is trading at $1.09202, up a modest 0.05% on the day, reflecting a cautious market sentiment.
The 4-hour chart suggests the pair is struggling to find clear direction, with the price hovering below the pivot point at $1.0956.
The Relative Strength Index (RSI) stands at 52, indicating a neutral market tone where neither the bulls nor bears have a clear advantage.
Immediate resistance is pegged at $1.0955, just below the pivot point. A break above this level could open the door for further gains, with the next resistance levels at $1.1010 and $1.1043.
These are crucial for the pair, as overcoming them could signal a shift towards a more sustained bullish trend.
The 50-day Exponential Moving Average (EMA), currently at $1.0881, serves as a key support, reinforcing the broader upward bias as long as the price remains above this level.
On the downside, immediate support lies at $1.0867, with further support at $1.0828 and $1.0777.
A breach of these levels could indicate a potential reversal in the current trend, inviting bearish momentum into the market.
Given the mixed technical signals, a strategic approach might involve entering a buy position near $1.08935, with a take profit target set at $1.09557 and a stop loss at $1.08653.
This setup offers a balanced risk-reward ratio while capitalizing on the potential for a near-term recovery.
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