Euro Falls on ECB Rate Cut Expectations; Dollar Holds Steady as Fed Eyes Cautious Easing

The euro dipped slightly to $1.0971, near its recent low. September saw euro zone inflation fall below 2% for the first time since 2021, driven by lower energy prices, prompting calls for an ECB rate cut in October. The ECB has already reduced rates this year, and economists now anticipate additional cuts in October and December as inflation eases faster than expected. ECB President Christine Lagarde suggested that current trends favor rate cuts to support the euro zone’s slowing economy.

Consumers' inflation expectations have decreased, reflecting confidence in the ECB’s ability to control prices. However, ECB policymakers remain cautious due to underlying pressures like core inflation, especially in the services sector, and rapid wage growth.

Analysts predict two 25 basis point rate cuts by year-end, with inflation expected to hover near 2% until 2027. Although Germany’s economy has stagnated, the euro zone's overall growth outlook remains moderately positive. Meanwhile, Euro zone finance ministers plan to address competitiveness with the U.S. and China by integrating EU capital markets to fund technological advancements.

In September, German inflation dropped to 1.8%, its lowest since February 2021, supporting calls for another ECB rate cut. While industrial production, particularly in the automotive sector, saw a better-than-expected rise of 2.9% in August, the German retail sector reported a downturn in business sentiment. Consumers’ uncertainty about economic policies is dampening expectations for spending growth in 2024. Germany's manufacturing sector contracted sharply, with declines in output, new orders, and employment, and the services sector growth nearly halted. Unemployment also increased by 17,000 in September, exceeding forecasts.

In France, consumer prices rose less than expected due to a significant drop in energy costs. The services sector contracted, reversing August's Olympic-driven growth, while the manufacturing sector continued to shrink, though at a slower rate than initially estimated.

The U.S. dollar remained stable near a seven-week high as investors weighed the outlook for further Federal Reserve rate cuts amid geopolitical concerns and China's economic struggles. Recent data has shifted expectations toward moderate, incremental rate reductions, especially following strong job growth in September.

 Federal Reserve officials, including Chair Jerome Powell and New York Fed President John Williams, have indicated that September's larger rate cut does not set a precedent, while Atlanta Fed President Raphael Bostic emphasized the labor market remains strong despite cooling.

On the economic front, the U.S. trade deficit narrowed sharply in August, reaching a five-month low, as exports surged to record highs, driven by strong demand for capital goods like telecommunications equipment and aircraft. This trend, coupled with robust job and consumer spending data, supports a stable economic outlook for Q3. However, the Fed is still focused on managing inflation and is likely to proceed with cautious, smaller rate cuts rather than substantial reductions.

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

Resistance : 1.1144, 1.1204, 1.1303

Support : 1.0946, 1.0886, 1.0787

1W Outlook

Source: TradingView  

Buy/Long 1 If the support at the price range 1.0846 - 1.0946 is touched, but the support at 1.0946 cannot be broken, the TP may be set around 1.1144 and the SL around 1.0796, or up to the risk appetite.

Buy/Long 2 If the resistance can be broken at the price range of 1.1144 - 1.1244, TP may be set around 1.1397 and SL around 1.0896, or up to the risk appetite.       

Sell/Short 1 If the resistance at the price range 1.1144 - 1.1244 is touched, but the resistance at 1.1144 cannot be broken, the TP may be set around 1.0881 and the SL around 1.1294, or up to the risk appetite.

Sell/Short 2 If the support can be broken at the price range of 1.0846 - 1.0946, TP may be set around 1.0623 and SL around 1.1194, or up to the risk appetite.       

Pivot Points Oct 9, 2024 04:38AM GMT