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EURUSD Rate to Stage Larger Rebound on Fed Rate Cut, Dovish Guidance

EURUSD Rate to Stage Larger Rebound on Fed Rate Cut, Dovish Guidance

What's on this page

EURUSD pulls back from the monthly-high (1.1110) ahead of the Federal Reserve interest rate decision, but fresh developments coming out of the central bank may keep the exchange rate afloat as Chairman Jerome Powell and Co. are expected to deliver a 25bp rate cut.

Keep in mind, EURUSD failed to test the 2019-low (1.0926) even though the European Central Bank (ECB) unveiled a slew of new measures to support the monetary union, and new projections coming out of the Federal Reserve may produce headwinds for the US Dollar should the central bank show a greater willingness to reverse the four rate hikes from 2018.

Image of Federal Reserve interest rate forecast

The updates to the Summary of Economic Projections (SEP) may show a lower trajectory for the benchmark interest rate as the central bank comes under pressure to implement a rate easing cycle, and Fed officials may insulate the US economy throughout the remainder of the year as President Donald Trump tweets that the “the Federal Reserve should get our interest rates down to zero or less.”

In turn, back-to-back rate cuts along with downward revision in the Fed’s dot-plot may spark a bearish reaction in the greenback, with the change in regime likely to fuel the recent rebound in EUR/USD as market participants prepare for a more accommodative policy stance.

EUR/USD Rate Daily Chart

Image of eurusd daily chart

Source: Trading View

Keep in mind, the broader outlook for EURUSD is tilted to the downside as the exchange rate clears the May-low (1.1107) following the Federal Reserve rate cut in July, with the 1.1100 (78.6% expansion) handle no longer offering support.

However, recent developments in the Relative Strength Index (RSI) point to a larger rebound in the exchange rate as the oscillator breaks out of the downward ward trend carried over June.

In turn, the failed attempt to test the 2019-low (1.0926) may open up the topside targets as EURUSD tags a fresh monthly-high (1.1110) following the ECB meeting, but need a close above the 1.1100 (78.6% expansion) handle to bring the 1.1140 (78.6% expansion) region on the radar.

Next area of interest comes in around 1.1190 (38.2% retracement) to 1.1220 (78.6% retracement) followed by the Fibonacci overlap around 1.1270 (50% expansion) to 1.1290 (61.8% expansion).

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Additional Trading Resources

For more in-depth analysis, check out the 3Q 2019 Forecast for the Euro

Are you looking to improve your trading approach? Review the ‘Traits of a Successful Trader’ series on how to effectively use leverage along with other best practices that any trader can follow.

Want to know what other currency pairs the DailyFX team is watching? Download and review the Top Trading Opportunities for 2019.

--- Written by David Song, Currency Strategist

Follow me on Twitter at @DavidJSong.

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.