EUR/USD Gains as US Data Supports Fed Rate Cut Expectations

The EUR/USD pair continued its upward trajectory on Friday, trading around 1.1745 in early European trading hours. The pair is on track to post a second consecutive weekly gain as recent US economic data reinforced expectations of potential Federal Reserve (Fed) interest rate cuts.

Key Factors Driving EUR/USD Movement

• Weak US Employment Data: Initial jobless claims in the US rose to 263,000 in the first week of September, a significant increase from 236,000 in the previous week. This marked the fastest pace of increase in four years, potentially signaling a softening labor market.

• Moderate US Inflation: August’s Consumer Price Index (CPI) data showed a yearly inflation rate of 2.9%, up from 2.7% in July. Core CPI remained steady at 3.1% year-on-year. These figures aligned with market expectations, maintaining the likelihood of Fed rate cuts.

• ECB Policy Stance: The European Central Bank (ECB) kept its Deposit Facility rate unchanged at 2%. ECB President Christine Lagarde stated that “risk to economic growth has become more balanced,” tempering expectations for near-term monetary easing in the Eurozone.

Market Implications and Trading Insights

1. Fed Rate Cut Expectations: The combination of weaker employment data and moderate inflation has cemented market expectations for a 25 basis point Fed rate cut next week, with at least one more cut anticipated before year-end.

2. ECB vs. Fed Policy Divergence: The ECB’s steady stance, contrasted with potential Fed easing, creates a supportive environment for the Euro against the US Dollar.

3. Upcoming US Consumer Sentiment Data: Traders should monitor the University of Michigan’s US Consumer Sentiment Survey, expected to show further deterioration. A weak reading could add pressure on the Fed to ease monetary policy, potentially impacting USD negatively.

Technical Analysis: EUR/USD Outlook

EUR/USD maintains a bullish bias within its recent ascending channel:

• Resistance Levels: Immediate resistance at 1.1745, followed by the 1.1780-1.1790 range.
• Support Levels: Key support at 1.1720, with the channel bottom at 1.1670.
• Technical Indicators: RSI has moved above 50, and MACD has crossed above the signal line, suggesting positive momentum.

Trader Action Points

• Long Positions: Consider entries near support levels, with targets at 1.1780-1.1790.
• Risk Management: Place stops below the channel bottom (1.1670) to protect against potential reversals.
• Watch for: US Consumer Sentiment data and any Fed policy signals ahead of next week’s meeting.

Traders on leading CEX platforms should closely monitor these developments, as they could significantly impact EUR/USD trading opportunities in the short to medium term.