It’s (Almost) Official: The Fed Is Trimming the Rate
EUR/USD Skyrockets, Breaks 1.1200 for the First Time in 2024
The greenback fell against most of its counterparts after Fed Chair Powell green-lighted the rate cut, indicating that it will be done at the September meeting. The USD is trading at levels last seen in July 2023 against the Euro and at levels last seen in March 2022 against the British Pound.
During his speech at the Jackson Hole Symposium, Fed Chair Powell said “The time has come for policy to adjust” and “With an appropriate dialing back of policy restraint, there is good reason to think that the economy will get back to 2% inflation while maintaining a strong labor market.”
This looks like a clear acknowledgment that the rate is going down at the next meeting, but the question is now: by how much? According to CME’s FedWatch tool, there’s a 61.5% chance that the rate will go down by 25 bps and there’s a 38.5% probability of a 50 bps rate cut.
Economic Calendar Highlights
The first notable release of the week is set for Tuesday at 2:00 pm GMT: the CB Consumer Confidence. This is a survey of about 3,000 U.S. households, which tries to gauge their opinions about business conditions, labor availability, and overall economic conditions.
Thursday at noon we take a look at German inflation with the release of the German Prelim CPI. The monthly figure is expected to drop from 0.3% to 0.0%, which would be a significant victory for Germany’s economy. Half an hour later, at 12:30 pm GMT, the U.S. will announce the Preliminary GDP.
Friday the focus remains on inflation with the release of the European CPI Flash Estimate at 9:00 am GMT and the U.S. Core PCE Price Index at 12:30 pm GMT. The PCE is the Fed’s preferred inflation gauge but it will probably not affect the rate cut plans unless major surprises happen.
Technical Outlook – EUR/USD
The pair has been rocketing higher since the U.S. rate cut became almost a certainty. The Euro broke 1.1200 for the first time in 2024, broke the previous significant peak (made in late December 2023) and the pair shows all the signs of an uptrend.
However, it must be noted that the RSI has entered overbought, signaling that a pullback is going to happen in the near future. As we know, an overbought RSI is not a sell signal on its own but the pair is also facing a resistance zone which may increase the chances of a pullback. The main bullish target is the peak at 1.1275, made in July 2023.
