Weekly EurUsd Outlook for July 22, 2024 – Fed & ECB Rate Cuts on the Horizon, Biden Withdraws

• Limited economic news from the United States, but the market appears convinced that interest rate cuts are imminent in September and likely in the final two meetings of 2024. The major political development, however, is Joe Biden’s decision to withdraw from the November presidential race.
• The ECB maintains rates but hints at a cut in September, likely followed by another adjustment to address further cooling inflation and economic growth.
• EurUsd has been rising for a month and attempted to breach resistance levels again, but unsuccessfully. September is expected to be the pivotal month for a more definitive trend.

ECB’s Partial Measures, Market Turbulence, and Biden’s Withdrawal Stir Economic Landscape

The ECB has partially satisfied the markets by enabling the repricing of the euro, which has been hampered by significant technical resistance and jittery stock markets in the last two sessions of the past week, exacerbated by the Crowdstrike-Microsoft bug chaos. Lagarde confirmed the Eurozone interest rates in the July meeting, keeping the door open for a rate cut in September. It seems likely that they will wait for the Federal Reserve to act in sync. According to Frankfurt, inflation will continue to fluctuate around 2.5% throughout 2024 before dropping to the 2% target in 2025. Dampening expectations somewhat was the statement that “internal price pressures remain high, service inflation is elevated, and overall inflation is likely to stay above target for much of next year.” The swap market prices in an 80% chance of a rate cut in the next meeting on September 12. Economic growth, according to the ECB, remains set with a downside risk, and the second quarter should not deviate much from the 0.3% growth seen in the first quarter of 2024. In the United States, there have been no significant macroeconomic updates. Politically, Joe Biden’s decision to exit the presidential race has shaken market players, who are now keenly watching the Democratic Party’s next moves. Following the attack on Trump, the upcoming election promises to be highly contested. Statements from FED officials indicate a cautious openness toward the rate cut that the market deems certain for September 18, alongside two more adjustments by year-end.

Technical Analysis: EurUsd Nears Key Resistance, Awaiting September Decisions

With last Friday’s close, EurUsd has risen for four consecutive weeks, nearing the critical resistance level of 1.10, which aligns with the 200-week moving average resistance. These are crucial levels that have been tested but not surpassed, indicating that a trend reversal in EurUsd has yet to materialize. September, when the ECB and FED will make their rate decisions, is likely to provide a clearer technical picture and possibly signal a short position on the dollar. For now, the situation remains uncertain.

The daily bar chart analysis of EurUsd, however, offers some additional insights. The downward trendline connecting the descending highs since the beginning of the year has been breached. A bearish engulfing pattern followed by a second bearish candle over the weekend casts doubt on this movement, potentially revealing a bull trap if the greenback manages to recover to 1.08 quickly. This week will be crucial in determining whether the euro has indeed left behind the bullish head-and-shoulders reversal pattern.