EUR/USD Analysis: Can the Euro Target 1.12? – 24 September 2024

-- At the start of this week, the Euro fell to $1.11, below its recent peak in July 2023 earlier this month, amid concerns that the European Central Bank may need to accelerate its easing efforts to support the struggling economy.
-- Preliminary Purchasing Managers' Indices for the Eurozone, Germany, and France were disappointing and showed a return of the Eurozone's private sector activity to contraction, as the end of the Olympic Games affected the French services sector and problems in German automakers like Volkswagen caused a further decline in the manufacturing sector.

Overall, investors are now betting on around 44 basis points in additional interest rate cuts by the ECB this year, with a 40% probability of a cut in October. The central bank cut interest rates by 25 basis points for the second time this year in September, and hinted at further cuts in the future due to slowing inflation and weak economic growth in the Eurozone.

What is expected for the EUR/USD in the coming days?

The EUR/USD exchange rate could rise, and analysts believe that the resistance level of 1.12 is an attractive target in the near term. Generally, the recent gains made by the Euro against the US Dollar are due to developments in the United States, where the massive 50 basis point US interest rate cut by the Federal Reserve last week ignited a new wave of dollar weakness.

We are noticing signs of over-extension in the exchange rates of many US dollars, and we wonder whether the US dollar is due for a comeback in the coming days as recent moves consolidate. This was the risk we see in the GBP/USD pair, and any decline there is likely to reflect weakness in the main EUR/USD pair.

Technically, there is only one level ahead that matters: the resistance level of 1.12. This is the level where the previous EUR/USD rallies that lasted for several weeks in August 2024 and mid-2023 failed. According to the forecast, the EUR/USD pair looks set to test the resistance level at 1.1202, its recent high, if the US dollar continues to slow as we expect. A test of the 1.12 resistance level seems likely, but whether it will happen this week is another matter. As we have already mentioned, the recent weakness in the US dollar seems overdone, and some neutrality may be in order.

In general, in the Eurozone, the forex markets will be watching the September PMI survey on Monday, as well as the German IFO survey, due out on Tuesday. However, the impact of these data will be short-lived as recent weeks have consistently confirmed that the dollar and the US Federal Reserve’s policy are the only options available.

For this reason, we will continue to focus on the existing risks in the United States in the coming days; the core personal consumption expenditure figures, which will be released on Friday, will be the Federal Reserve's preferred measure of inflation. Meanwhile, financial markets expect US inflation to rise by 0.1 percentage point to 2.7% year-on-year in August. Rising inflation conflicts with expectations of a generous flow of interest rate cuts by the Federal Reserve from now until late 2025, and if the market wakes up to this clear contradiction, the dollar could recover.

Initially, Monitor the different policymakers at the Federal Reserve who are scheduled to give speeches this week. Thus, any cautionary voices about the pace of future cuts could give the market a reason to rebalance to a lower level of euphoria that prevailed last week.

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EUR/USD Technical analysis and forecast:

According to the performance on the daily chart attached, EUR/USD bulls are trying to break the psychological resistance barrier of 1.1200 to confirm control. Thus, the pair prepares to test stronger peaks, in which case technical indicators will move towards strong overbought levels. In the same time frame, as we mentioned before, the support levels of 1.1075 and 1.0885 will remain the most important to confirm the general trend turning to the downside. Today, the euro will be affected by the announcement of the German IFO reading and the dollar will be affected by the announcement of the US consumer confidence reading.

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