EUR/USD Daily Forecast – Euro Recovers to Retest Breakout PointEUR/USD has recovered a bulk of the losses that followed Wednesday’s Fed Meeting. The pair is testing an important technical area and a reaction from here should set a directional tone over the near-term.
Impacts of Fed Meeting Were Short-Lived
Wednesday’s Fed meeting let the markets know that the central bank is not planning to start a cycle of rate cuts. Instead, they will asses material changes and perceived risks to the economy as they come and adjust policy as necessary.
This caused a bit of an unwind in the markets which were positioned for the start of a more substantial easing cycle. However, it did not take long for the financial markets to revert back to the view that rate cuts are looming.
US President Trump provided the catalyst as he announced more tariff’s on Chinese imports, signaling that trade war talks are not progressing. This signaled a dramatic shift to risk aversion with metals rallying while equities reversed recent gains.
Probabilities for a rate cut in September shot up and the money markets are now nearly fully pricing in a cut at the next meeting.
In the currency markets, USD/JPY was hit the hardest as a result of the yen’s safe-haven status. The currency pair tumbled just over 2% from highs and is on the verge of hitting a fresh six-month low.
EUR/USD didn’t see quite as volatile of a swing as the safe-have currencies did. The pair touched a low near 1.1030 in the early day yesterday and was last seen batting resistance around 1.1100.
While EUR/USD did not have as volatile of a reaction as other markets, there have been some significant technical developments.
In yesterday’s forecast, I discussed a downside break of a declining trend channel and its implications. The pair has regained the channel which tends to signal reversal potential.
Further, the pair has posted a reversal candlestick on a daily chart. Yesterday’s bullish hammer print indicates a strong buying presence which should keep the pair bid on dips.
What stands to trump the technical outlook is today’s US jobs report. Although based on how convinced the markets are that another rate cut is coming, even a strong report is not likely to alter expectations all that much.
A key resistance level is in play at 1.1118. This is the same level that held the pair higher in April, May and ahead of Wednesday’s Fed decision. A break above it would be quite significant and signal a trend reversal.
- Trumps tariff announcement has shifted sentiment in the markets.
- EUR/USD is at a key inflection point
- US jobs data will be released later in the day and is likely to stir volatility