Euro Weakens Amid Economic Uncertainty; ECB Rate Cut Expected, U.S. Dollar Rebounds

The European Central Bank is expected to cut its main interest rate by 25 basis points to 3.50% on Thursday, following a similar reduction in June. Market expectations indicate a 48% chance of another cut in December. Meanwhile, investor confidence in the euro zone fell for the third straight month in September, reaching its lowest since January, with the Sentix index dropping to -15.4 from -13.9 in August, contrary to analysts' predictions of a slight recovery.

Germany's economy faces stagnation this year, according to the Ifo institute, which revised its growth forecast from 0.4% to zero. Economic challenges include weak investment and productivity stagnation, despite a brief rise in industrial orders due to large contracts. Industrial production fell by 2.4% in July, driven by a significant decline in the automotive sector. Inflation is expected to decrease to 2.2% this year, with further declines in the following years, but weak consumption and rising unemployment are ongoing concerns. Despite lower inflation improving purchasing power, high interest rates and the weak German economy are dampening business investment.

France has requested an extension from the European Commission for submitting a deficit reduction plan as its economy faces political instability and budgetary challenges. Economic growth in the third quarter was bolstered by the Olympics, but a contraction is expected by year-end, with full-year growth forecast at 1.1%.

Italy's government forecasts 1% GDP growth for this year and expects at least 1.2% growth in 2025, aiming to reduce its fiscal deficit in line with EU regulations, while retail sales rose modestly in July.

The U.S. dollar rebounded against other major currencies on Monday after recent losses, as investors awaited key U.S. inflation data and scaled back expectations for a large Federal Reserve interest rate cut next week. The dollar rose for a second consecutive day against the euro. U.S. rate futures fully priced in a 25-basis-point rate cut at the Fed’s September 17-18 meeting, with a 29% chance of a larger 50-basis-point cut, down from 50% last Friday. Traders also expect 113 basis points of easing in 2024, up from around 100 basis points.

Meanwhile, U.S. wholesale inventories in July rose less than initially estimated, with a 0.2% increase revised down from the previously reported 0.3%, as sales rebounded sharply. This casts doubt on whether inventory investment will boost economic growth in the third quarter.

Attention now shifts to Wednesday's U.S. consumer price index (CPI) report, with expectations for a 0.2% month-on-month increase in August, consistent with July, and a year-on-year rise of 2.6%, down from 2.9% in July. Although the Fed has focused more on employment than inflation, the recent U.S. jobs report did not clarify whether the Fed will opt for a standard 25-basis-point rate cut or a larger 50-basis-point cut next week. Fed policymakers have indicated readiness for a series of rate cuts due to a cooling labor market, which may worsen without lower borrowing costs. As a result, the Euro is likely to fluctuate within a wide range and continue to weaken against the US dollar in the medium term due to the disparity in returns and economic strength between the two countries.

Data for Technical Analysis (1H) CFD EUR/USD

Resistance : 1.1036, 1.1037, 1.1039

Support : 1.1032, 1.1031, 1.1029

1H Outlook

Source: TradingView

Buy/Long 1 If the support at the price range 1.1029 - 1.1032 is touched, but the support at 1.1032 cannot be broken, the TP may be set around 1.1038 and the SL around 1.1028, or up to the risk appetite.

Buy/Long 2 If the resistance can be broken at the price range of 1.1036 - 1.1039, TP may be set around 1.1045 and SL around 1.1031, or up to the risk appetite.       

Sell/Short 1 If the resistance at the price range 1.1036 - 1.1039 is touched, but the resistance at 1.1036 cannot be broken, the TP may be set around 1.1032 and the SL around 1.1040, or up to the risk appetite.

Sell/Short 2 If the support can be broken at the price range of 1.1029 - 1.1032, TP may be set around 1.1025 and SL around 1.1035, or up to the risk appetite.       

Pivot Points Sep 10, 2024 02:31AM GMT