Focus shifts to US PCE and 1.1200

• EUR/USD resumed the weekly uptrend and escaped before 1.1200.
• The US dollar succumbed to the better tone in the risk complex.
• Chinese officials announced another set of incentives on Thursday morning.

EUR/USD managed to regain its balance and leave Wednesday’s deep pullback behind, revisiting the 1.1190 region amid renewed and marked downside damage to the US dollar (USD) on Thursday.

In addition, supporting the improvement in merchant sentiment, China’s Politburo promised to provide benefits to the poorest and provide local governments with the necessary finance to avoid further falls in property prices. The decision follows the PBoC’s previous stimulus measures to revitalize the real estate sector and support the stock market, as well as a focus on stabilizing the housing market and strengthening the consumer framework.

On the US side, the US Dollar Index (DXY) faced increased selling pressure as the NA session drew to a close, once again retesting the 100.50 area despite rising US yields on various timeframes.

In the context of broader monetary policy, market participants continued to anticipate further easing from the Federal Reserve (Fed) during its meetings in November and December amid positive expectations for a soft landing in the US economy.

Following the FOMC meeting, there is still uncertainty as to whether the size of the September rate cut will be repeated. Updated “dot plot” indicates 50 more basis points of relaxation this year. Additionally, the Fed statement and Chairman Powell clarified that the 50 basis point cut was not a panic reaction.

Returning to the European Central Bank (ECB), it is worth noting that the decision to ease monetary policy last week was influenced by their assessment of inflation and economic conditions. Although the ECB did not explicitly signal an interest rate cut for October, it acknowledged that domestic inflation remains high. ECB President Christine Lagarde noted that easing the impact of monetary policy restrictions should benefit the economy, with inflation expected to return to 2% by 2025, while maintaining a cautious view on further action.

Looking ahead, if the Fed proceeds with further rate cuts, the policy gap between the Fed and the ECB may narrow, which could provide support for EUR/USD. This scenario seems plausible, especially as markets anticipate two more rate cuts from the ECB and between 100 and 125 basis points of easing from the Fed over the next 12 months.

However, the US economy is expected to outperform its European counterpart over the long term, which may limit any significant or prolonged dollar weakness.

EUR/USD daily chart

EUR/USD short-term technical outlook

Further EUR/USD advances are likely to meet initial resistance at the 2024 high of 1.1214 (September 25), followed by the 2023 high of 1.1275 (July 18).

The next downside target for the pair is the September low of 1.1001 (September 11), which is supported by the temporary 55-day SMA and is above the weekly low of 1.0881 (August 8). The critical 200-day SMA is at 1.0873, ahead of the weekly low of 1.0777 (August 1) and the June low of 1.0666.

Meanwhile, the pair’s uptrend is expected to continue as long as it holds above the key 200-day SMA.

The four-hour chart indicates a resumption of the positive trend. The initial resistance level is 1.1214, then 1.1275. On the other hand, the initial dispute is at 1.1121, followed by 1.1083 and 1.1068. The Relative Resistance Index (RSI) rose to near 59.