EUR/USD Analysis: Euro Hits 12-Month High – 22 August 2024

-- Amid a bullish momentum, the Euro has risen above $1.1170, its highest level since July 2023, as expectations of US interest rate cuts by the Federal Reserve have weakened the US dollar.
-- The latest Federal Reserve minutes indicated the possibility of a US interest rate cut in September, with some speculation that it could reach 50 basis points due to recent revisions to non-farm payrolls.

In Europe, markets are awaiting key economic data that could influence the European Central Bank's decisions, with expectations of a 65-basis point interest rate cut by the ECB in 2024.

Meanwhile, the euro price may take its direction from the results of the region’s purchasing managers’ index surveys, as a slight recovery in manufacturing and services activity is expected in Germany and France. Stronger-than-expected results could dampen hopes of immediate ECB easing, which could lead to a rise in the value of the common European currency.

At its meeting on July 30, several Federal Reserve officials acknowledged that a case could be made for cutting US interest rates before the central bank's policy committee voted unanimously to keep rates unchanged. The meeting minutes, released on Wednesday in Washington, stated: "Several noted that the recent progress on inflation and the increase in the unemployment rate provided a reasonable case for reducing the target range by 25 basis points at this meeting or that they might have supported such a decision. A large majority noted that if incoming data evolved as expected, it would likely be appropriate to ease policy at the next meeting."

On the stock trading front, European stocks close higher. Concurrently, European stocks held onto early gains and closed higher on Wednesday, recovering from the previous session’s slide to extend the stock market’s recovery from a selloff earlier in the month as investors continued to assess the outlook for growth and future credit costs. Furthermore, the euro zone’s Stoxx 50 index added 0.6% to close at a one-month high of 4,885, while the Stoxx 600 advanced 0.3% to close at 514. Consumer cyclicals dominated gains, with Hermes, Ferrari and Adidas adding between 3% and 1.2%. Mercedes, BMW, Volkswagen and Stellantis also gained between 1.5% and 0.5%, setting the pace for automakers.

Meanwhile, chip stocks outperformed the sector on Wall Street, with ASML and Infineon up about 1.5%. also, European investors mostly shrugged off the aggressive downward revision to U.S. payrolls data for the year to March, as they awaited minutes from the latest Federal Reserve meeting due after the closing bell.

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EUR/USD Technical analysis and forecast:

EUR/USD is trending higher, forming higher lows connected by a bullish trend line that has held since early August. Furthermore, there could be another test of this support area as the pair stops at the 1.1135 area. The Fibonacci retracement tool shows levels where buyers might wait to join the rally. Also, the 38.2% Fibonacci retracement level is at 1.1065, then the 50% Fibonacci retracement level is at 1.1043 near the dynamic turning point of the 100 simple moving average. Moreover, the larger correction could reach the 61.8% Fibonacci retracement level closer to the trend line at 1.1021.

If any of these levels are able to keep losses under control, EUR/USD could resume its climb to a higher high or higher. Also, the 100 SMA is above the 200 SMA to indicate that the path of least resistance is up or that the upside is more likely to gain momentum than reverse.

At the same time, the Stochastic indicator is already pointing to overbought levels and looks ready to turn lower, indicating an increase in selling pressure. The oscillator has room to slide before reaching the oversold zone, so the correction may continue until that happens. Similarly, the RSI is in the overbought zone and looks ready to head lower, so the EUR/USD pair may follow suit as bearish pressures increase.

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Original Source DailyForex.com provides daily fundamental and technical analysis and signals for those looking to trade based on trends in the currency markets.