- EUR/USD hit new highs for 2024 near 1.1170 and again targeted the 1.1200 level.
- The dollar continued to decline, reaching new lows for the year in the area below 101.00.
- The minutes of the FOMC meeting paved the way for a rate cut next month.
EUR/USD extended its gains for the fourth consecutive day, building on the optimism seen earlier in the week and reaching new 2024 highs at around 1.1170, amid significant weakness in the US dollar (USD).
The greenback experienced another decline, falling below the key support of 101.00 as tracked by the US dollar index (DXY) for the first time since December 2023. This decline was reinforced by the FOMC minutes, which left the door open for a rate cut by the Fed in September.
In addition to the continued weakness of the greenback, market participants continued to expect a dovish message from Chairman Jerome Powell during his upcoming speech at the Jackson Hole Symposium on Friday.
Following the release of the July consumer price index (CPI), the probability of a half-percentage point rate cut by the Fed next month has declined. A smaller rate cut is now considered more likely. This trend was supported by better-than-expected results from other key US economic indicators.
As for possible rate cuts, CME Group’s FedWatch tool suggests that the probability of a 25 basis point cut at the September 18 meeting is almost 60%. The day before, the probability was around 70%.
Meanwhile, ECB Executive Board member Fabio Panetta argued on Wednesday that the central bank was likely moving toward a phase of monetary easing in response to falling inflation and sluggish growth.
Although the FOMC minutes supported the idea of lower rates as early as next month, Governor Michelle Bowman remained cautious on Tuesday after suggesting that interest rates should be cut gradually if inflation maintains the Fed’s 2% target and avoiding overly tight monetary policy. She acknowledged elevated inflation and upside risks and emphasized the Fed’s price stability mandate and monitoring of labor market weakening.
If the Fed implements larger rate cuts, the policy gap between the Fed and the ECB could narrow in the medium to long term, potentially pushing the EUR/USD pair higher, especially as markets expect two more rate cuts by the ECB this year.
In the longer term, however, the US economy is likely to outperform the European economy, suggesting that any continued dollar weakness may be only temporary.
Looking ahead, Thursday’s focus will be on the release of preliminary purchasing managers’ indices on both sides of the Atlantic, supported by Chairman Jerome Powell’s speech at Jackson Hole and Bank of Japan Governor Kazuo Ueda’s testimony to parliament.
EUR/USD daily chart
EUR/USD short-term technical outlook
Further north, EUR/USD is likely to test its 2024 high of 1.1173 (August 21), supported by the round level of 1.1200 and the 2023 high of 1.1275 (July 18).
The pair’s next downside target is the 200-day SMA at 1.0845, followed by the weekly low of 1.0777 (August 1) and the June low of 1.0666 (June 26), all ahead of the May low of 1.0649 (May 1).
Overall, the pair’s uptrend should continue as long as it stays above the key 200-day SMA.
So far, the four-hour chart has shown a clear increase in the positive bias. The first resistance is at 1.1173, ahead of 1.1275. On the other hand, there is immediate support at the 55-SMA of 1.1005, ahead of 1.0949 and finally 1.0881. The Relative Strength Index (RSI) rose above 83.
