Fundamental Outlook
One of the main drivers for EUR/USD at the moment is the anticipation of a Federal Reserve rate cut. Market participants have increased their expectations for a 25-basis-point cut at the September 17 FOMC meeting, with the probability rising to 86% from 75% the previous week. This dovish sentiment has been fueled by ongoing political pressure on the Fed and recent public remarks, especially those delivered by Jerome Powell at the Jackson Hole symposium.
In the United States, revised second quarter GDP figures came in stronger than expected at +3.3% quarter-on-quarter. Despite this, inflation remains subdued, and there are signs that the labor market is losing momentum. The upcoming Non-Farm Payrolls (NFP) report, scheduled for Friday, is being closely watched as it will likely play a pivotal role in shaping near-term market sentiment.
On the European side, the euro is benefiting from a modest recovery in demand and the absence of aggressive intervention by the European Central Bank. However, political uncertainty in France, marked by the rise of far-right influence and a pending confidence vote for Prime Minister Attal’s government, is limiting the potential for further euro gains.
Technical Analysis
From a technical perspective, EUR/USD is trading within a defined range, with support at 1.1570 and resistance at 1.1740. A clear breakout above 1.1740 could set the stage for a move toward 1.1830, whereas a drop below 1.1570 may result in a decline toward 1.1380.
Technical indicators, such as the MACD and Stochastic Oscillator, are showing weak momentum, which suggests that the pair is likely to continue consolidating. Candlestick patterns also indicate reduced volatility, as evidenced by shorter bodies and tighter trading ranges. At present, EUR/USD is positioned near the mid-point of its established range, fluctuating between 1.1660 and 1.1710. For the month of September, the speculative trading range is anticipated to be between 1.1590 and 1.1850.
Trading Scenarios
Bullish Setup:
• Entry: Consider long positions above 1.1650, with confirmation ideally above 1.1710.
• Targets: Initial target at 1.1740, with potential extension to 1.1830.
• Stop-Loss: Suggested stop-loss level below 1.1580.
• Catalysts: This scenario is supported by weak US economic data, a dovish tone from the Federal Reserve, and political stability within the Eurozone.
Bearish Setup:
• Entry: Consider short positions below 1.1580.
• Targets: Initial target at 1.1500, with a further downside potential to 1.1380.
• Stop-Loss: Suggested stop-loss level above 1.1675.
• Catalysts: This scenario is driven by strong US data, a more hawkish stance from the Federal Reserve, and increasing political risks in the European Union.