If the Federal Reserve only cuts interest rates by 25 basis points this week, the EUR/USD will return to 1.12!
As the market adapts to the possibility of the Federal Reserve cutting interest rates by 50 basis points this week, the EUR/USD continues to rebound in the new week.
Kit Juckes, head of foreign exchange analysis at Societe Generale, said that if the Federal Reserve cuts interest rates by 50 basis points this week, the euro against the dollar will return to 1.12, setting a post Jackson Hole high.
If the Federal Reserve cuts interest rates by 25 basis points, such a small decrease is disappointing compared to market expectations, and Juckes believes that this may trigger profit taking of the euro against the US dollar.
From a technical perspective, the trend of EUR/USD is constructive. Tanmay Purohit, a technical analyst at Soci é t é G é n é rale, said, "The euro broke through a large symmetrical triangle against the US dollar and continued its upward momentum." He pointed out that 1.12 seems to be a key resistance for the future.
The market currently expects a 75% chance of the Federal Reserve cutting interest rates by 50 basis points this week, compared to only around 30% a week ago.
In addition, if the Federal Reserve only cuts interest rates by 25 basis points this week, the US dollar will rebound and the pound will fall sharply against the US dollar. Clyde Wardle, Senior Emerging Markets Forex Strategist at HSBC, said, "If the Federal Reserve only cuts interest rates by 25 basis points, the pound will be very fragile
Wardle stated that a 25 basis point rate cut by the Federal Reserve will steer the US dollar towards a better position, especially considering that the market has already digested expectations of a significant rate cut and there are signs of excessive short selling of the US dollar.
EUR/USD daily chart
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