The EUR/USD pair has steadily recovered to surpass the 1.1040 level at the start of Monday’s trading, in an attempt to maintain a moderate upward trend.
In my opinion, last week’s encouraging data on U.S. retail sales and weekly jobless claims had a short-term impact on the markets, temporarily boosting the dollar but not enough to restore strong bullish momentum for the U.S. dollar.
From my perspective, the euro is capitalizing on the anticipation of a possible interest rate cut by the Federal Reserve in September, with a 23% chance of a 50 basis point cut, which could narrow the interest rate gap between the dollar and the euro.
Expectations for the Federal Reserve and the European Central Bank (ECB) to keep interest rates steady have not significantly changed. However, the current outlook on the Federal Reserve’s actions is affecting the strength of the dollar, making it weaker. Similar decisions are expected from the ECB, and I don’t foresee any major surprises from the ECB.
Although the euro has managed to stay above the 1.10 level, in my view, it remains within the long-term trading range of 1.0610 – 1.1040, with the potential to test the next resistance level at 1.1050 in the short term.
However, I believe there are still doubts about the euro’s ability to maintain upward momentum for a long period and easily stay above 1.10, challenging the highs it reached in the past few months near 1.12. This is because the markets are heavily influenced by volatile and inconsistent data, and geopolitical tensions remain a secondary factor, as the dollar is considered a safe-haven asset.
Therefore, I prefer to maintain a neutral stance on EUR/USD trading at this point and avoid rushing to buy the U.S. dollar at these levels, as there is another possibility for a modest rise in the pair with good opportunities after exiting the current overbought zone.
On a fundamental level, today’s economic calendar seems relatively unimportant to me, and I believe that unless there are any significant events, the focus will be on the direction of global stock markets, which I consider to be the main driver of the euro’s rise in recent days.
Next Friday, traders, investors, and markets, in general, will be closely watching Federal Reserve Chair Jerome Powell’s speech, especially since it will be preceded by U.S. consumer service and manufacturing data on Thursday, providing a good opportunity for more signals regarding potential interest rate cuts.
In this context, I must clarify that San Francisco Federal Reserve President Mary Daly said on Sunday that recent U.S. economic data gave her “more confidence” that inflation is under control. Chicago Federal Reserve President Austan Goolsbee emphasized that U.S. central bank officials should be cautious about keeping restrictive policy in place for too long. I believe these comments are exerting more selling pressure on the U.S. dollar and creating parallel strength for the EUR/USD pair in the near term.
Markets are now anticipating an initial 25 basis point rate cut, which would lower the federal interest rate to 5.00 from 5.25%. On the other hand, the euro remains strong, in my opinion, as markets expect the ECB to gradually cut interest rates without a specific timeline.
ECB President Christine Lagarde confirmed at the latest press conference that officials “are not pre-committing to a particular interest rate path. The consensus was to stick to a data-dependent approach and take each meeting at a time,” which means that caution, uncertainty, and sharp volatility will dominate the markets in the near and medium term.
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