EUR/USD Forecast: 3 Risks Traders Face After France’s Downgrade and Fed Bets
The euro started the week under pressure, slipping to 1.1730 after Fitch downgraded France’s credit rating from AA- to A+...
Quick overview
- The euro weakened to 1.1730 after Fitch downgraded France's credit rating, raising concerns about political instability in the Eurozone.
- Investor sentiment towards the euro is fragile, with the ECB's upcoming announcements being closely watched.
- The US dollar is struggling due to high jobless claims and missed payroll forecasts, increasing expectations for a Federal Reserve rate cut.
- EUR/USD is consolidating above a rising trendline, with bullish signs but facing resistance at 1.1747.
The euro started the week under pressure, slipping to 1.1730 after Fitch downgraded France’s credit rating from AA- to A+, the lowest from a major agency. The cut followed the resignation of Prime Minister François Bayrou after a failed parliamentary confidence vote on an austerity budget, raising fears of political instability in the Eurozone’s second-largest economy.
Investor sentiment towards the euro is fragile and the European Central Bank (ECB) is under the spotlight as President Christine Lagarde speaks later this week. Political risks have increased the chances the single currency will struggle to find support without a clear policy anchor.
Dollar Capped by Fed Cut Expectations
While euro weakness dominated early trading, the US dollar is struggling to rally. US jobless claims hit a 14-month high and nonfarm payrolls missed forecasts, boosting bets the Federal Reserve will cut rates. According to the CME FedWatch Tool, markets now see a 25-basis-point reduction on September 17, with more easing expected by year-end.
Weaker consumer sentiment has added to the dollar’s woes. The University of Michigan index fell to 55.4 in September from 58.2 in August, well below expectations, indicating stress in household finances. This mix of political stress in Europe and monetary uncertainty in the US has left EUR/USD range-bound, waiting for fresh catalysts from the Fed and ECB.
Technical Outlook: EUR/USD Consolidates
EUR/USD is holding at 1.1728, consolidating above the rising trendline from late August. The pair is making higher lows, a bullish sign, but buyers face resistance at 1.1747.
On the 4-hour chart, the 50-period EMA at 1.1705 is acting as support, while the 200-period EMA at 1.1598 underpins the uptrend. Recent candles are spinning tops, indicating indecision but hinting at a breakout once momentum builds.
The RSI is at 53, neutral, with room to move higher without being overbought. No bearish divergence has emerged, so the bullish structure remains intact.
Trade Setup:
- Entry Zone: Buy dips near 1.1705-1.1710 at the trendline and 50-EMA.
- Stop Loss: Below 1.1685 to protect against false breaks.
- Targets: 1.1747, 1.1778, 1.1810.
- Risk Trigger: Below 1.1700 invalidates the trade, 1.1659 support.
For newbies: EUR/USD is bullish, but confirmation is key. Wait for a bullish candle or higher lows before entering to minimize risk.
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