The EUR/USD currency pair is clinging to a seven-week low, currently trading around the 1.0984 mark. This downward pressure is a direct result of the market’s evolving outlook on the Federal Reserve’s interest rate trajectory. The recent robust employment report released last week has triggered a reassessment of expectations for future rate cuts.
Initially, the market anticipated more aggressive easing, with predictions of rate cuts totaling 70 basis points by the end of the year. However, the positive job data has shifted this perspective towards a more conservative approach. The market now anticipates a 25-basis-point cut in November with an 85% probability, followed by another in December, totaling 50 basis points for the remainder of the year.
This shift in expectations has solidified the US dollar’s position. The Federal Reserve’s inclination towards gradual easing, rather than abrupt shifts, is providing significant support to USD enthusiasts.
Today, attention will turn to the US trade balance data. While this release is not expected to significantly impact market activity, investors are likely to hold their breath for the upcoming release of the minutes from the last Fed meeting, scheduled for tomorrow. These minutes could offer valuable insights into the central bank’s future policy direction.
Technical Analysis: EUR/USD
The EUR/USD recently completed a downward wave, reaching 1.0950. The pair is currently consolidating above this level, with the expectation of an upward extension to 1.1000. This upward movement could be viewed as a corrective measure against the preceding downward trend. Upon reaching 1.1000, a subsequent decline to 1.0915 is possible.
The MACD indicator supports this bearish scenario, with its signal line positioned below zero and trending downwards, suggesting further declines.
On the hourly chart, the EUR/USD is forming a consolidation around 1.0977. A breakout upwards is anticipated, with the growth wave structure nearing completion at 1.0995. This could lead to a brief decline back to 1.0977, followed by another push towards 1.1000. This upward move is seen as a correction, with the potential for a subsequent decline back to 1.0915.
The Stochastic oscillator aligns with this view, with its signal line currently above 80. However, it is poised to drop towards 20, indicating the potential for a reversal after the correction.
