EUR/USD Surges to New 2024 Highs as Fed Minutes and ECB Policies Dominate Market Focus
EUR/USD Surges to New 2024 Highs as Fed Minutes and ECB Policies Dominate Market Focus
EUR/USD Maintains Momentum Near 1.1130 Ahead of Key Fed Minutes
The EUR/USD pair has continued to exhibit strength, trading near 1.1130 as markets brace for the release of the Federal Open Market Committee (FOMC) minutes from its July monetary policy meeting. The Euro has held firm against the US Dollar, stabilizing above the 1.1100 mark, reflecting investors’ confidence in the European Central Bank’s (ECB) measured approach to its monetary policy, in contrast to the Federal Reserve’s (Fed) more cautious outlook.
In July, the Fed chose to keep interest rates steady for the eighth consecutive time. However, Fed Chair Jerome Powell’s remarks indicated that discussions about potential rate cuts are on the table, depending on future economic data, especially concerning inflation and employment.
EUR/USD Daily Price Chart
Source: TradingView, prepared by Richard Miles
ECB’s Policy Path and Economic Outlook
ECB’s Rate Cut Expectations and Economic Conditions
The Euro’s recent performance has been buoyed by expectations that the ECB will not rush into aggressive rate cuts, despite challenges facing the Eurozone’s largest economy, Germany. ECB policymakers have been careful not to commit to a fixed course for interest rate reductions, particularly given that inflation in the Eurozone is expected to remain above the ECB’s target for the remainder of the year. This cautious stance has helped underpin the Euro, as market participants anticipate that the ECB will likely resume its policy-easing cycle in September.
The economic outlook in the Eurozone remains uncertain, with Germany experiencing slower growth. However, there are signs of relief, such as the recent data from Germany’s Bundesbank, which reported that Negotiated Wage growth in the second quarter slowed to 3.1%, down from the 6.2% increase observed in the first quarter. This moderation in wage growth has provided some breathing room for ECB officials and has bolstered optimism that the central bank might proceed with a rate cut in September.
Key Economic Data to Watch
Investors are now looking ahead to the release of preliminary Eurozone HCOB Purchasing Managers’ Index (PMI) data for August, as well as the Q2 Negotiated Wage Rates, both scheduled for Thursday. The Composite PMI is expected to show only slight improvement, reflecting ongoing weaknesses in the manufacturing sector. Meanwhile, the Negotiated Wage Rate, which rose by 4.69% in the first quarter, will be closely watched for any signs of further moderation, which would likely be welcomed by the ECB as it considers its next move on interest rates.
Daily Market Movers: EUR/USD Holds Firm Above 1.1100 Amid Dollar Weakness
USD Pressure and Market Sentiment
The EUR/USD pair has been holding steady near 1.1130 during Wednesday’s European session, marking the highest level seen in 2024. The pair is poised to challenge the annual highs of 1.1140, driven by the US Dollar’s ongoing weakness. The Dollar Index (DXY), which measures the greenback’s value against a basket of six major currencies, is hovering near a fresh seven-month low at around 101.30.
The continued easing of inflationary pressures in the United States, coupled with cooling labor market conditions, has strengthened the market’s belief that the Fed will opt for an interest rate cut in September. However, traders remain divided over the magnitude of this potential cut. According to the CME FedWatch Tool, there is a 30.5% probability of a 50-basis-point (bps) rate reduction, while the majority of the market anticipates a more moderate 25-bps cut.
Key Events: FOMC Minutes and Powell’s Speech
Market participants are eagerly awaiting the release of the FOMC minutes from the July policy meeting, scheduled for 18:00 GMT on Wednesday. During the July meeting, the Fed decided to keep its key borrowing rates unchanged within the range of 5.25%-5.50%. This marked the eighth consecutive meeting where rates were held steady, reflecting the Fed’s cautious approach as it balances the risks associated with its dual mandate of controlling inflation and maintaining employment.
In addition to the FOMC minutes, traders are also focusing on Fed Chair Jerome Powell’s upcoming speech at the Jackson Hole Symposium, which will take place from Thursday to Saturday. Powell’s remarks will be scrutinized for any hints regarding the Fed’s policy direction, particularly concerning the potential for rate cuts in September. In his press conference following the July meeting, Powell noted that if inflation continues to decline as expected, and economic growth remains stable, a rate cut could be a viable option at the September meeting.
Technical Analysis: EUR/USD Eyes 2024 Highs
Bullish Technical Indicators and Key Levels
From a technical perspective, the EUR/USD pair is gathering strength as it approaches its year-to-date high of 1.1140. The currency pair’s recent breakout from a channel formation on the daily chart has provided a boost to the bullish momentum. The upward-sloping 20-day and 50-day Exponential Moving Averages (EMAs), positioned near 1.0970 and 1.0900 respectively, further support the bullish trend.
The 14-day Relative Strength Index (RSI) is currently oscillating within the bullish range of 60.00-80.00, indicating strong upside momentum. This suggests that the EUR/USD pair could continue its upward trajectory, with the next major resistance level at 1.1200. A decisive break above the December 28, 2023 high of 1.1140 would likely open the door for further gains.
On the downside, the August 15 low at 1.0950 is seen as a critical support level. A break below this level could signal a reversal in the current bullish trend, potentially bringing the pair back towards the EMAs. However, as long as the EUR/USD remains above 1.1100, the outlook is expected to remain positive.
EUR/USD Poised for Further Gains Amid Central Bank Uncertainty
The EUR/USD pair’s recent performance reflects the broader market dynamics as traders navigate the uncertainty surrounding central bank policies in both the Eurozone and the United States. With the ECB expected to proceed cautiously with rate cuts and the Fed facing a complex economic landscape, the EUR/USD is likely to remain volatile in the near term.
As the market awaits key events, including the FOMC minutes and Jerome Powell’s Jackson Hole speech, the EUR/USD pair is positioned to potentially reach new highs for 2024. Investors will be closely watching these developments, as they will provide crucial insights into the future trajectory of both the Euro and the US Dollar.
