- Fed policymakers gradually gained confidence that inflation would reach 2%.
- Markets are pricing in a rate cut of 50 or 25 basis points in September.
- On Tuesday, the ECB’s Olli Rehn said the central bank should cut rates in September.
The EUR/USD forecast shows increased bullish momentum as the greenback extends its slide against the euro amid heightened Fed rate cut expectations. The euro rose despite an ECB official calling on the central bank to cut rates in September.
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The euro recently rallied as investors priced in the Fed’s first rate cut in September. Initially, ECB policymakers were more dovish than the Fed. Accordingly, the ECB was among the first central banks to cut interest rates. Since then, policymakers have taken a cautious tone as inflation has stalled.
Meanwhile, Fed policymakers gradually gained confidence that inflation would reach 2%. At the same time, markets are pricing in a rate cut of 50 or 25 bps in September. However, there is a better chance that the Fed will implement a smaller cut. The US economy has slowed significantly. However, like last week’s retail sales report, there are still pockets of strength. Accordingly, the Fed may opt for a more gradual pace of rate cuts.
Meanwhile, the ECB’s Olli Rehn said on Tuesday that the central bank should cut rates in September due to recent weakness in the eurozone economy. He became one of the first officials who clearly guided the future. Economists believe that the European Central Bank will cut rates in September and December.
Market participants are eagerly awaiting the Fed’s minutes for more guidance on the outlook for rate cuts. Moreover, Powell’s speech on Friday is likely to increase market volatility.
EUR/USD key events today
EUR/USD Technical Forecast: Bears could return after solid rally
On the technical side, the EUR/USD price is in a well-developed bullish trend. The price made a series of higher highs and lows. At the same time, it respected the 30-SMA as support, bouncing higher each time it revisits the line. Meanwhile, the RSI is trading in overbought territory, indicating massive bullish momentum.
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The price recently broke above the 1.1050 resistance level. The bulls are now eyeing the next hurdle at the 1.1150 level. However, the price was in a solid movement without a break. Therefore, the bears could soon overwhelm the bulls to retest the 30-SMA before the uptrend resumes.
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