EUR/USD Price Analysis – Aug 28, 2024
Daily Price Outlook
During the European trading session, the EUR/USD currency pair struggled to halt its downward trend, remaining under pressure around the 1.1126 level and hitting an intra-day low of 1.1122.
The decline can be attributed to the weaker Euro currency as investors anticipate that the European Central Bank (ECB) will cut interest rates again in September.
However, the ECB began reducing interest rates in June, with the expectation that inflation in the Eurozone will return to the bank's target of 2% by 2025.
Meanwhile, the ECB decided to keep its key borrowing rates unchanged in July, concerned that aggressive rate cuts could reignite inflationary pressures. Furthermore, a mild recovery in the US Dollar has further pressured the EUR/USD currency pair.
Euro Weakens on Rate Cut Expectations and Economic Uncertainty
On the EUR front, the Euro is underperforming against its major peers as investors expect the European Central Bank (ECB) to cut interest rates again in September.
The ECB began lowering rates in June, aiming for inflation in the Eurozone to hit 2% by 2025. Despite this, the ECB kept rates unchanged in July due to concerns that further cuts might reignite inflation.
Recent data, including the Eurozone flash HCOB PMI for August and Q2 Negotiated Wage Rates, show an uncertain economic outlook and easing wage pressures.
This has led to expectations that the ECB will reduce rates by 25 basis points in September, with possible additional cuts in the last quarter of the year.
Investors are waiting for the flash Harmonized Index of Consumer Prices (HICP) data for Germany and the Eurozone, set to be released on Thursday and Friday, to get more clues on future rate cuts.
Therefore, the anticipated ECB rate cut and uncertain economic outlook contribute to a weaker Euro, likely exerting downward pressure on the EUR/USD pair. Traders' focus on upcoming HICP data could further influence the pair's movement.
US Dollar Rebounds Amid Rate Cut Speculations and Upcoming Inflation Data
On the US front, the major currency pair drops as the US Dollar (USD) recovers from a recent year-to-date low.
The US Dollar Index (DXY) has risen to around 100.80 from a low of 100.50. This rebound may be short-lived, with market participants viewing it as a potential selling opportunity.
The outlook for the USD remains uncertain, largely due to expectations that the Federal Reserve (Fed) will cut interest rates in September.
Traders are divided on whether the Fed will implement a 25 basis points (bps) or a larger 50 bps rate cut. According to the CME FedWatch tool, there is a 34.5% chance of a 50-bps cut, while the rest expect a 25-bps reduction.
Investors are awaiting the US core Personal Consumption Expenditure (PCE) inflation data for July, due on Friday. If inflation shows signs of declining, it could lead to a more aggressive rate cut by the Fed; otherwise, expectations for a large cut may fade.
EUR/USD - Technical Analysis
The Euro (EUR/USD) is currently trading at $1.11369, down 0.17% on the day, as the pair struggles to maintain momentum above key support levels.
On the 4-hour chart, the immediate support lies at $1.1150, which aligns closely with the 50-day Exponential Moving Average (EMA) at $1.1117.
A decisive break below this support could accelerate the pair’s decline, potentially leading to a test of the next support levels at $1.1107 and $1.1072.
These levels have previously acted as strong support and are critical in determining the short-term direction of the EUR/USD.
On the upside, the pivot point at $1.1201 serves as the immediate resistance. The pair would need to clear this level to challenge the next resistance at $1.1232, followed by $1.1266.
These resistance levels represent significant barriers that the Euro must overcome to reverse the current bearish sentiment. The RSI indicator is currently at 46, suggesting that there is room for further downside before reaching oversold conditions.
The overall technical outlook remains bearish, with the Euro struggling to gain traction above $1.1150.
The 50-day EMA will be a crucial level to watch, as a break below it could signal further losses. Conversely, a sustained move above the $1.1201 pivot point could provide the necessary momentum for a recovery.
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