Euro Nears 14-Month High as Dollar Weakens After Fed Rate Cut

September 26, 2024

Key points:

• EURUSD trades close to its strongest level in 14 months after the Fed’s 50 bps rate cut.
• Markets are eyeing potential resistance near $1.1276, a key level from July 2023.

This is a follow up article to: Euro Slips on Weaker PMIs and Potential ECB Rate Cuts

The EURUSD currency pair is riding a wave of bullish momentum after the decision by the Federal Reserve to lower interest rates by 50 basis points last week. The euro climbed to $1.1158, approaching the $1.12 mark for the first time in 14 months.

Picture: EURUSD close to 14-month high record after Fed rate cut, as observed on the VT Markets app.

The recent rate cut by the Fed has weighed on the U.S. dollar by reducing its yield attractiveness. Lower rates typically reduce demand for a currency, making the dollar less appealing to investors, especially when compared to other major currencies like the euro.

Strong Technical Resistance for the Euro Seeks to be Broken

Despite the 5.7% rise of the euro against the U.S. dollar since April, the pair faces tough technical resistance levels. The immediate barrier lies at the August peak of $1.1205.

Beyond that, traders are watching for a potential double-top formation near the July 2023 high of $1.1276, a level that marked the euro’s peak before a series of declines. If the pair manages to break through these resistance levels, it could signal a more extended rally for the euro.

If the euro successfully surpasses these resistance points, we could see further bullish movement, especially if U.S. economic data continues to signal weakness. However, traders should remain cautious of any retracements, especially if the European Central Bank (ECB) signals further rate cuts.

Related content: Interest rate tug of war for central banks

In the short term, all eyes will be on the stance of the ECB and whether additional rate cuts will be necessary, especially given the broader economic slowdown in Europe. For now, the U.S. dollar remains on the defensive as traders anticipate the impact of the recent rate cut.

Risks and Opportunities for EURUSD Traders

For traders looking to capitalise on the current volatility, the $1.1205 level serves as a crucial pivot. A break above could offer long opportunities, while a failure to breach this level may prompt profit-taking and lead to short positions.

With such a dovish tone from the Fed and a cautious stance from the ECB on another hand, expect significant movements around key data releases this week.

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