Key points:
The EURUSD pair surged past the $1.12 mark, hitting its highest level of 2024, as the US dollar faced market pressure following dovish signals from Federal Reserve Chair Jay Powell.
Picture: EURUSD hit $1.1205 for the first time in 2024, as observed on the VT Markets app.
The Euro has gained traction against the U.S. dollar, closing at 1.11651, reflecting a positive trend as market expectations build that the Federal Reserve may soon ease its monetary policy.
This sentiment has provided a tailwind for the Euro, allowing it to rise as investors anticipate that a dovish shift from the Fed could reduce the appeal of the U.S. dollar, making the Euro more attractive in comparison.
The chart shows the EUR/USD pair maintaining its upward momentum, with the price consistently trading above key Exponential Moving Averages (EMAs), particularly the 72-period EMA, which continues to support the bullish trend. The MACD indicator also confirms the strength of this trend, with the MACD line above the signal line and the histogram in positive territory, signaling continued buying interest in the Euro.
As the Euro approaches resistance near 1.12017, traders will be watching closely to see if the currency can break through this level, potentially paving the way for further gains.
On the downside, support around 1.11500 could act as a safety net in case of any pullbacks.
The key driver behind this rally in the euro is the growing consensus that the Federal Reserve will start cutting interest rates as early as September.
In his much-anticipated speech at the Jackson Hole symposium, Powell stated, “The time has come for policy to adjust,” highlighting that inflation has declined, the labour market has cooled, and supply constraints have eased.
These comments were taken by the market as a clear signal that the Fed is ready to lower rates to support economic growth.
This dovish shift by the Fed has led to a repricing in the markets. Traders are now fully expecting at least a 25 basis point (bps) rate cut at the Fed’s next meeting, with a 35% chance of a 50 bps cut, up from 28% prior to Powell’s speech.
Lower interest rates are typically negative for a currency as they reduce the yield on investments denominated in that currency, leading to reduced demand.
The EURUSD currency pair breaking above $1.12 could signal further gains if the Fed delivers a larger-than-expected rate cut in September. However, traders should also be cautious of potential volatility, especially around key economic data releases, such as the upcoming U.S. jobs report.
This data will be key in determining the Fed’s next move and could either reinforce or undermine the current market narrative.
Traders might consider positioning themselves for continued euro strength, but with an eye on any developments that could shift market sentiment, such as stronger-than-expected US economic data or a more hawkish tone from the ECB.
