EUR/USD climbs to near 1.1150 on firm Fed high rate bets

• EUR/USD rises near 1.1150 as the prospect of a big Fed rate cut weighs on the US dollar.
• The Fed is expected to cut interest rates by 100 bps by the end of the year.
• ECB policymakers dismiss market outlook for October interest rate cut.

EUR/USD extends Monday’s gains to near crucial 1.1150 resistance in Tuesday’s European session. The main currency pair is showing strength against the US dollar (USD), which is weighed down by increasing bets that the Federal Reserve (Fed) will opt for a big interest rate cut on Wednesday.

The US dollar is trading near an all-time low as market speculation for a big Fed rate cut strengthened after weaker-than-expected August Producer Price Index (PPI) data and media reports which shows officials are keeping the door open to such a cut. The US Dollar Index (DXY), which tracks the greenback against six major currencies, is near 100.50.

According to the CME FedWatch tool, the likelihood that the Fed will cut interest rates by 50 basis points (bps) to 4.75%-5.00% rose sharply to 69% from 34% a week ago. In addition to the Fed’s interest rate decision, investors will also focus on the dot plot and economic projections.

The Fed’s dot chart indicates where policymakers see the federal funds rate heading over the medium to long term. Traders see the Fed cutting interest rates by 100bps to 4.25%-4.50% by the end of the year, suggesting the central bank will opt for a big rate cut at one of its three remaining meetings this year .

In Tuesday’s session, investors will pay close attention to monthly US retail sales data for August, which will be released at 12:30 GMT. Economists forecast retail sales rose 0.2 percent, slower than July’s 1.0 percent increase. Slower growth in retail sales would indicate a weak inflation outlook.

Daily market reasons: EUR/USD gains as ECB Kazimir rejects expectations of October rate cut

• EUR/USD is rising near key resistance at 1.1150 in European trading hours. The major currency pair holds gains as the euro (EUR) performs strongly as European Central Bank (ECB) officials avoid committing to a predefined rate cut path and prefer to decide interest rates on a meeting-by-meet basis. This comes amid lingering concerns about economic growth in Germany and a drop in euro zone inflation to 2.2% in August, the lowest rate in three years.
• Less dovish interest rate guidance from ECB Governing Council member Peter Kazimir on Monday also helped strengthen the euro. Kazimir dismissed market expectations of an October rate cut by the ECB, saying in a blog post: “We will almost certainly have to wait until December for a clearer picture before making the next move,” Reuters reported. “The ECB had to make sure that the data it received confirmed its forecasts. Otherwise, policymakers may regret rushing to cut borrowing costs before inflation is sustainably subdued,” he added. Also, Gediminas Šimkus, a member of the ECB Governing Council, said on Tuesday that the likelihood of an interest rate cut in October was very low.
• Meanwhile, the ZEW Survey – which measures institutional investor sentiment – ​​showed Eurozone Economic Sentiment fell sharply to 9.3 in September, the lowest level since November 2023. Sentiment data was estimated to have eased slightly to 17, 6 from 17.9 in August.

Technical Analysis: EUR/USD continues to rise to near 1.1150

EUR/USD continues to gain to near 1.1150. The main currency pair consolidated after retesting the breakout of the Rising Channel chart formed on a daily time frame close to the psychological support of 1.1000. The major currency pair’s short-term outlook has strengthened as the asset is holding above its 20-day exponential moving average (EMA), which is trading around 1.1060.

The 14-day Relative Strength Index (RSI) is moving higher near 60.00. A bullish momentum would be triggered if it holds above the above mentioned level.

Looking to the upside, the September 6 high of 1.1155 and round-level resistance at 1.1200 will act as major roadblocks for Euro bulls. On the downside, the psychological level of 1.1000 and the July 17 high near 1.0950 will be major support areas.