EUR/USD Price Analysis – Aug 30, 2024
Daily Price Outlook
During the European trading session, the EUR/USD currency pair extended its downward trend and remained well-offered around the 1.1069 level.
This decline can be attributed to the bullish US dollar, which gained traction due to upwardly revised US Q2 GDP figures, reducing the chances of a more significant Federal Reserve rate cut.
Furthermore, the previously released soft German inflation data has bolstered expectations for another ECB interest rate cut in September.
Meanwhile, the Eurozone flash annual Harmonized Index of Consumer Prices (HICP) declined as expected in August, which typically weakens the EUR by suggesting lower inflation pressures and potentially prompting the ECB to maintain or adopt a dovish stance.
Strong US Economic Data and Lower Rate Cut Expectations Boost USD, Weigh on EUR/USD
On the US front, the broad-based US dollar is gaining strength due to strong economic data. The US Gross Domestic Product (GDP) grew by 3.0% annually in the second quarter, surpassing the initial estimate of 2.8%. Besides this, Initial Jobless Claims for the week ending August 24 fell to 231K from 233K, coming in below the expected 232K.
This economic strength has reduced expectations for a significant Federal Reserve rate cut in September. The US Dollar Index (DXY), which tracks the dollar against six major currencies, is trading just below a fresh weekly high of 101.58 as investors await the US Personal Consumption Expenditure (PCE) Price Index for July.
Currently, financial markets are confident that the Fed might start reducing interest rates in September, but there is uncertainty about the extent of the cut. According to the CME FedWatch tool, there's a 33% chance of a 50-basis points cut, while others expect a 25-basis points reduction.
The likelihood of a larger rate cut has decreased slightly since the BEA reported a higher-than-expected GDP growth rate of 3% for the second quarter.
Therefore, the strong US economic data and reduced rate cut expectations have strengthened the US dollar, leading to a decline in the EUR/USD pair. The higher GDP growth and lower jobless claims support a firmer dollar, weakening the euro.
Eurozone Inflation Data and Economic Weakness Pressure EUR/USD
Another factor that kept the EUR/USD pair lower is the Eurozone’s inflation data for August, which shows a decline. The flash annual Harmonized Index of Consumer Prices (HICP) dropped to 2.2% from 2.6% in July, mainly due to lower energy prices.
Core HICP, which excludes volatile items like food and energy, rose by 2.8%, slower than the previous 2.9%. This weaker inflation data is likely to boost speculation that the European Central Bank (ECB) will cut interest rates again in September and potentially more later in the year.
Market expectations for an ECB rate cut increased after data showed that inflation in Germany, the Eurozone’s largest economy, fell to 2% for the first time in over three years. Additionally, Germany's economy contracted by 0.1% in the second quarter, suggesting a technical recession.
Other Eurozone countries, like France and Spain, also reported significant inflation declines. Analysts, such as Carsten Brzeski from ING, believe that the combination of fading inflation and weak growth makes a strong case for more rate cuts.
EUR/USD - Technical Analysis
The EUR/USD pair is currently trading at $1.10757, down 0.01% as it hovers just above a key support level at $1.10695. The market sentiment appears cautious, with the Relative Strength Index (RSI) at 40, signaling a slight bearish bias in the short term.
This reflects some downward pressure as the pair remains below the 50-day Exponential Moving Average (EMA) of $1.11355, indicating that the bears might still have some control.
The immediate pivot point at $1.11005 serves as a critical juncture for traders. A decisive break above this level could signal a potential recovery, with immediate resistance at $1.11395 and further targets at $1.11892.
On the downside, if the price slips below $1.10695, the next support lies at $1.10337, with additional support levels at $1.09995 and $1.09685. These levels are crucial for maintaining the current range, and a breach could open the door to more significant declines.
Given the current technical setup, traders might consider entering a long position above $1.10697, with a take profit target near $1.11188. A stop loss placed around $1.10430 could help mitigate downside risk if the support fails to hold.
Overall, EUR/USD is trading within a tight range, with the possibility of a breakout depending on how the price interacts with the $1.11005 pivot point. As the market awaits further directional cues, the pair’s movement around these key levels will be pivotal in determining the next trend.
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