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EURUSD Analysis – The US Dollar Index Climbs Close to Renewing 2024’s Highs

The EURUSD is trading considerably lower for a second consecutive day due to the strengthening US Dollar. However, investors should note that the Euro is also weakening against most currencies including the AUD, CAD and NZD. The exchange rate is currently trading 0.10% lower while the US Dollar Index is 0.20% higher.

The price of the EURUSD has slightly retraced as the European session opens which provides an opportunity for investors to enter at a more competitive price. However, if is vital trader await for a renewed signal and momentum to be regained. Based on the Fibonacci levels a sell signal will materialize if the price again declines below 1.06528, while failing to climb above 1.65629. On the two hour chart the price is trading below trend-lines and in the “sell” zone of the RSI.

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The two-day meeting of the US Federal Open Market Committee on monetary policy commenced yesterday. Analysts anticipate that the interest rate will be maintained at 5.50%. However, they will closely scrutinize statements from officials and the press conference led by Jerome Powell, the head of the regulator. Tonight’s rate decision announcement will hold lesser significance, as investors will direct their attention towards the subsequent statement and press conference. Powell’s press conference is scheduled for 18:30 GMT.

Investors anticipate a significant rise in the US Dollar’s value as they expect the committee to adopt a more hawkish stance. This anticipation is driven by the rise in US inflation to 3.5%, the highest level since September 2023, and the US Unemployment Rate remaining firmly below 4.00%. The future trajectory of the US Dollar hinges on the tone of the Federal Reserve in tonight’s meeting. If the Fed maintains its stance on three rate cuts, the Dollar may face downward pressure as it would be perceived as overvalued. However, if the regulator hints at fewer adjustments and no cuts in the coming months, the Dollar’s higher valuation will be deemed justified.

Bond Yields trade 0.002% higher and could continue to support the Dollar if yields continue to rise. The CME Fed Tool continues to paint a more hawkish picture. According to the CME, an interest rate cut in September is now almost a 50/50 possibility. Whereas, last week saw it as the likely outcome.

The Euro on the other hand has seen positive economic data over the past 24 hours including higher Preliminary GDP growth from most Members and higher CPI Estimates. German GDP growth read 0.2%, the highest since 2022. French, Spanish and Italian GDP Growth Rates also showed much needed growth within the Eurozone. However, so far, the price continues to be overpowered by the expected Fed’s hawkish stance. Investors fear the Federal Reserve will be incapable of adjusting, while the European Central Bank will cut on at least one occasion.

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Michalis Efthymiou
HFM’s Market Analyst
Michalis Efthymiou brings over 9 years of extensive experience in the financial services industry across the United Kingdom and Europe. Initially serving as a financial advisor in London for 5 years, he has transitioned into the field of market analysis over the past 4 years.
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