EUR/USD Rallies Amid Fed Rate Cut Expectations and U.S. Data Insights
The EUR/USD opened near 1.0920 in New York after reaching 1.09050 overnight, trading within a tight range of 1.0910-1.09362 for most of the session and closing slightly down by 0.06% in the afternoon. The pair held above key short-term support levels, including the August 5 daily low and the 25-Day Moving Average (DMA), which provided some comfort to long positions.
Key support levels for EUR/USD are at 1.0901, aligning with the 15-DMA and daily low, and at 1.0885, near the 50% Fibonacci retracement of the 1.0770-1.1004 rally. Immediate resistance is around 1.09360, the day’s high, with further psychological and technical resistance at 1.1100. Technical indicators show mixed signals: the rising monthly RSI suggests bullish momentum, while the falling daily RSI indicates potential short-term weakness. The formation of long lower wicks on daily candles for the past two sessions indicates buying interest at lower levels and potential consolidation of recent gains.
Market sentiment and influences on EUR/USD are shaped by positive sentiment driven by German-U.S. yield spreads, particularly the two-year spread, which has been at its tightest since July 2023 following a U.S. payroll report indicating slower job growth. This spread is helping EUR/USD hold above key support levels. Investors are closely watching U.S. weekly and continuing claims reports due on Thursday; upside surprises in these reports, indicating accelerated job cuts, could lead to lower U.S. yields as market participants might anticipate a 50 basis point cut by the Federal Reserve in its September meeting. This could further tighten yield spreads, potentially supporting a resumption of EUR/USD’s recent rally and a test of the 1.1100 area.
Overall, the balanced risks for EUR/USD, combined with the technical support levels and yield spread dynamics, suggest that while there are mixed signals, the pair has the potential to consolidate and possibly resume its upward trend if economic data aligns with market expectations. Bulls appear confident, buying dips and positioning for potential further gains if U.S. economic data supports a dovish Fed outlook.
