- EUR/USD's midweek recovery may have been too rapid and overextended.
- The boost from the ECB rate cut was short-lived, with market attention shifting to the Fed.
- Investors are adjusting their positions as the rate market assesses the likelihood of a 50 bps Fed cut.
EUR/USD briefly climbed back to the 1.1100 level on Friday before market forces once again pressured the Euro, pulling the pair back to its opening levels. The pair’s attempt at a short-term technical recovery, following a midweek shift to a bullish stance, has stalled as traders shift focus to the upcoming Federal Reserve (Fed) rate decision next week.
On Thursday, the European Central Bank (ECB) cut its main refinancing rate from 4.25% to 3.65%, a 60 bps drop that initially sparked a brief bullish rally in the Euro. However, this momentum has quickly faded as global markets remain fixated on Fed rate cut expectations. According to the CME’s FedWatch Tool, traders currently see a 45% chance of a 50 bps rate cut when the Fed announces its decision on September 18.
The University of Michigan’s Consumer Sentiment Index rose to 69.0 in September, hitting a four-month high as consumer confidence in the US economy improved after months of declining expectations. While this reinforced rate cut speculation for next week, the survey also highlighted an increase in 5-year Consumer Inflation Expectations, ticking up to 3.1% from 3.0% in August.
Additionally, US Export and Import Price Indexes for August saw sharper-than-expected declines, with the Export Price Index contracting by -0.7% (versus an expected -0.1%) and the Import Price Index falling -0.3% (below the expected -0.2%), signaling easing inflationary pressures in trade.
EUR/USD Price Forecast
Despite a near-term pullback from its 13-month highs around 1.1200 in late August, downward pressure on the pair is encountering resistance from buyers, keeping the EUR/USD from falling to its 50-day Exponential Moving Average (EMA) at 1.0984.
EUR/USD daily chart
