Green light for additional earnings

• EUR/USD hit new 2024 highs near 1.1170 and retargeted the 1.1200 barrier.
• The dollar fell further, hitting fresh YTD lows in the sub-101.00 area.
• The FOMC minutes cleared the way for a rate cut next month.

EUR/USD extended gains for a fourth straight day, building on the optimism from earlier in the week and hitting new 2024 highs around 1.1170 on significant weakness in the US dollar (USD).

The greenback posted another low, falling below the key 101.00 support for the first time since December 2023, when it was tracked by the US dollar index (DXY). That decline was accentuated by the FOMC minutes, which left the door open for a rate cut by the Fed in September.

Adding to the ongoing weakness in the Greenback market, market participants continued to anticipate a dovish message from Chairman Jerome Powell during his next speech at the Jackson Hole Symposium on Friday.

After July’s consumer price index (CPI) release, the likelihood of a half-point rate cut by the Fed next month has fallen, with a smaller rate cut now seen as more likely. This shift was supported by better-than-expected results from other key US economic indicators.

As for potential rate cuts, CME Group’s FedWatch tool indicates a nearly 60% probability of a 25bp cut at the Sept. 18 meeting, down from about 70% the previous day.

Meanwhile, ECB Governing Council member Fabio Panetta said on Wednesday that the central bank was likely heading for a period of monetary easing in response to falling inflation and sluggish growth.

Despite the FOMC minutes backing the idea of ​​lower rates as early as next month, Governor Michelle Bowman remained cautious on Tuesday after suggesting a gradual rate cut if inflation supports the Fed’s 2% target, avoiding overly accommodative monetary policy. restrictive. She acknowledged elevated inflation and growth risks and emphasized the Fed’s mandate of price stability and monitoring of labor market weakness.

If the Fed implements more rate cuts, the policy gap between the Fed and the ECB could narrow over the medium to long term, potentially driving EUR/USD higher, especially as markets anticipate two more rate cuts by the ECB in this year.

However, looking longer term, the US economy is expected to outperform Europe, suggesting that any prolonged dollar weakness could be temporary.

Looking ahead, the release of flash PMIs on both sides of the Atlantic will take center stage on Thursday, backed by President Jerome Powell’s Jackson Hole speech and Bank of Japan Governor Kazuo Ueda’s testimony before Parliament.

EUR/USD daily chart

EUR/USD short-term technical outlook

Further north, EUR/USD is likely to test its 2024 high of 1.1173 (August 21), backed by the 1.1200 round level and the 2023 peak of 1.1275 (July 18).

The pair’s next downside target is the 200-day SMA at 1.0845, followed by the weekly low of 1.0777 (August 1) and the June low of 1.0666 (June 26), all preceding the May 1 low .0649 (May 1).

Looking at the bigger picture, the pair’s uptrend should continue as long as it holds above the key 200-day SMA.

So far, the four-hour chart has shown a considerable increase in the positive bias. The initial resistance level is 1.1173, which comes before 1.1275. On the other hand, there is immediate support at the 55-SMA of 1.1005, before 1.0949 and finally 1.0881. The Relative Resistance Index (RSI) rose beyond 83.