Market Analysis

Euro Hits Yearly Highs Amid Weaker USD and Fed Rate Cut Expectations

Dupoin · 20 Aug174K Views

EURUSD

Prediction: Uptrend Expected

Fundamental Analysis:

The Euro (EUR) has strengthened against the US Dollar (USD), reaching new highs for the year on Monday. This gain is attributed to a weakening USD, with investors anticipating the Federal Reserve (Fed) will start lowering interest rates in September. The prospect of Fed rate cuts, coupled with the expected rate hikes from the European Central Bank (ECB), could further bolster the Euro. However, the longer-term outlook might limit Euro gains due to the anticipated stronger performance of the US economy compared to Europe. Key events to watch this week include the release of the FOMC Minutes, a speech by Fed Chair Jerome Powell at Jackson Hole, and testimony by Bank of Japan Governor Kazuo Ueda.

Technical Analysis:

The Euro is likely to maintain its upward momentum against the US Dollar, with potential targets being the 2024 high of 1.1083 and the December 2023 peak of 1.1139. Nonetheless, if the EUR/USD pair falls below the critical 200-day moving average (SMA) at 1.0842, the upward trend may face challenges. Immediate support levels are at 1.0949, followed by 1.0881 and the 200-day SMA. Technical indicators show a strong positive bias, with the Relative Strength Index (RSI) currently above 77.

GBPUSD

Prediction: Bullish

Fundamental Analysis:

Since last Friday, the British Pound has strengthened against the US Dollar, largely due to a persistent decline in the USD. Although recent US economic data, such as lower jobless claims and higher retail sales, initially supported the USD, improved market risk appetite has led to its weakening. Consequently, GBP/USD has climbed. Going forward, the pair's movement will likely be influenced by overall risk sentiment, with US stock market trends being a significant factor.

Technical Analysis:

The GBP/USD is anticipated to encounter resistance at 1.2900, 1.2950, and 1.3000, which align with Fibonacci retracement levels from the recent downtrend. On the support side, expect potential support at 1.2850-1.2840, 1.2800, and 1.2760, derived from Fibonacci levels and moving averages.

XAUUSD

Forecast: Expected to Rise

Fundamental Analysis:

Gold prices remain robust near record highs, buoyed by anticipated US interest rate cuts and a weakening US Dollar. Investors are keenly awaiting the Jackson Hole Symposium, where Fed Chair Jerome Powell is scheduled to speak on Friday. The Federal Reserve's policy on interest rates is crucial for gold prices, as there is cautious speculation about a potential rate cut. Additionally, the forthcoming US manufacturing data (PMIs) will be scrutinized for further insights.

Technical Analysis:

Gold (XAU/USD) is trading close to its record peak and has demonstrated resilience by rebounding from a dip to $2,385. This recovery indicates strong buying interest at lower price levels. Technical indicators reveal a solid upward trend, with gold consistently trading above significant moving averages, including the 20-day Simple Moving Average (SMA) at $2,429.00. The short-term outlook appears favorable, with a higher probability of price increases compared to declines. This suggests that gold is likely to continue its upward trajectory in the near term.

USDJPY

Prediction: Decline Expected

Fundamental Analysis:

The Japanese Yen has gained strength against the US Dollar, supported by stronger-than-anticipated GDP growth in Japan, which has heightened expectations for a possible interest rate hike by the Bank of Japan (BoJ). Conversely, the USD/JPY pair has received backing from a robust US Dollar, driven by rising Treasury yields. Despite this, further appreciation of the US Dollar might be constrained by anticipated rate cuts from the US Federal Reserve (Fed) in September. While a 25 basis point rate cut is the most likely scenario, a 50 basis point reduction remains a possibility, adding uncertainty to the Fed’s decision.

Technical Analysis:

Currently trading near 146.60, the US Dollar against the Japanese Yen exhibits a short-term bearish trend. Technical indicators reveal that the price is positioned below the 9-day EMA, with the RSI just above 30, signaling potential for a correction. Key support levels are found at 141.69 (a seven-month low) and 140.25. Resistance levels are positioned at 147.53 (9-day EMA), 153.40 (50-day EMA), and 154.50. This suggests a potential decline in the USD/JPY pair in the near term, although a breakout above the resistance levels could lead to upward movement.

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