The Euro has experienced a rebound, moving from 1.1716 to 1.1763 as the markets have fully priced in a 25 basis points rate cut by the Federal Reserve in September, while significantly reducing the likelihood of a more aggressive 50 basis points cut. Recent data suggests that U.S. Retail Sales are poised to be weaker in August, contributing further to downward pressure on the U.S. Dollar. The upcoming week will spotlight a variety of key economic indicators and speeches, particularly focusing on the European Central Bank (ECB).
On Monday, EUR/USD advanced over 0.21%, demonstrating resilience against a backdrop of a downgrade to France’s sovereign credit rating. Despite the political turbulence in France, expectations surrounding the Fed’s upcoming rate decisions have been a major factor in driving the Euro higher. The pair is currently trading at 1.1763, bouncing back from daily lows earlier in the day.
Interest rates have become a pivotal topic as the Federal Open Market Committee (FOMC) meeting draws near. Data from money markets indicates that traders have closely watched the situation, fully pricing in the anticipated 25-basis points rate cut from the Fed, while the chances of a “jumbo size” cut remain slim. This sentiment reflects a broader trend among traders as they prepare for the possibility of declining momentum in U.S. economic performance, with Retail Sales data expected to show a dip of around 0.3% month-over-month in August.
In conjunction with these developments, U.S. Industrial Production is also projected to continue its slowdown, anticipated to drop by 0.1% month-over-month. This combination of factors is likely to exert further pressure on the Greenback, as reflected in the U.S. Dollar Index (DXY), which is down 0.28% at 97.34.
As the Eurozone reacts, attention will shift to the ECB with notable speeches scheduled, including one from José Luis Escriva. Traders will also be looking for Italy’s inflation data, the ZEW Surveys from Germany and the Eurozone for September, and the overall Industrial Production data for the bloc. Markets remain particularly interested in comments from ECB officials, including Isabel Schnabel, who indicated that current interest rates could be “in a good place” amidst stabilizing inflation figures around the ECB’s target of 2%.
Despite Fitch Ratings Agency downgrading France’s sovereign credit rating from AA- to A+, the Euro managed to stay buoyant in the face of political instability. Analysts note that while Fitch predicts two additional rate cuts by the Fed in September and December, it does not foresee any cuts from the ECB in the near future. The ECB has adopted a meeting-by-meeting, data-dependent approach, which will further shape market expectations.
Looking ahead, the technical outlook for EUR/USD appears strong, with the pair remaining above 1.1750. If the Euro can break past its recent cycle high of 1.1779, it may challenge the significant resistance level at 1.1800, setting its sights on the year-to-date high of 1.1829. Conversely, a decline below 1.1750 could lead sellers to push the value down towards 1.1700 and potentially expose further supports including the 20-day and 50-day simple moving averages at 1.1688 and 1.1660, respectively.
Overall, the markets continue to closely monitor data releases and directional shifts in monetary policy as they impact currency valuations and economic performance in both the U.S. and Eurozone.
