EUR/USD Soars As Expectations For Fed Rate Cuts Increase

Fundamental Analysis

* Dovish Delight: The Euro has continued its upward trend against the US Dollar for the third consecutive day. This momentum is driven by growing speculation that the US Federal Reserve may cut interest rates in 2024, which would weaken the US Dollar and support the EUR/USD pair. On Friday, the US Bureau of Economic Analysis reported that inflation in the US had dropped to its lowest annual rate in over three years. The US Personal Consumption Expenditures (PCE) Price Index rose by 2.6% year-over-year in May, down from 2.7% in April, meeting market expectations. Similarly, Core PCE inflation increased by 2.6% year-over-year in May, down from 2.8% in April, also aligning with forecasts. The anticipated decline in underlying inflation data is expected to bolster market speculation that the Federal Reserve will begin reducing interest rates starting from the September meeting. According to the CME FedWatch tool, two rate cuts are anticipated for this year.

Technical Analysis

* Technical Breakout: EURUSD was traded higher following prior breakout above 1.07450. MACD which illustrate bullish momentum signal with recent bullish market structure breakout suggest the pair to further extend its gains.

* Resistance and Support: If the bullish momentum persists, there’s a strong likelihood that the price will potentially head towards 1.08050. Conversely, a potential correction is also to be expected and the price could head towards 1.06750 after it breaks back below the level 1.07450.

Potential Risks

Moving ahead, the market will closely watch the key data release of the US Personal Consumption Expenditures (PCE) Price Index, the Fed’s preferred inflation measure, on Friday. Additionally, investors will be keeping an eye on developments in the U.S. election, which could also potentially impact the financial markets.

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Monitoring

Stay updated on US data, US election, central bank updates and any shifts in the US Dollar’s strength by following PU Xtrader’s financial news page.

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