EUR/USD Forecast: Dollar falls with Fed rate cut on horizon

• Fed policymakers gradually gained confidence that inflation would reach 2%.

• Markets are expecting a rate cut of 50 or 25 bps in September.

• On Tuesday, the ECB’s Olli Rehn said the central bank should cut rates in September.

The EUR/USD forecast shows bullish upside as the dollar extends its decline against the euro amid heightened expectations of a Fed rate cut. The euro rose despite an ECB official asking the central bank to cut interest rates in September.

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The euro rallied recently as investors fully priced in the Fed’s first interest rate cut since September. Initially, ECB policymakers were more dovish than the Fed. Consequently, the ECB was among the first central banks to cut interest rates. Since then, policymakers have adopted a cautious tone as inflation has stagnated.

Meanwhile, Fed policymakers gradually gained confidence that inflation would reach 2%. At the same time, markets are pricing in a 50-bps or 25-bps rate cut in September. However, there is a higher chance that the Fed will implement a lower rate cut. The US economy has slowed significantly. However, like last week’s retail sales report, there are still points of strength. As a result, the Fed could opt for a more gradual pace of rate cuts.

Meanwhile, the ECB’s Olli Rehn said on Tuesday that the central bank should cut interest rates in September due to recent weakness in the eurozone economy. He became one of the first officials to clearly guide the future. Economists believe the European Central Bank will cut rates in September and December.

Market participants are eagerly awaiting the Fed’s minutes for more guidance on the outlook for a rate cut. In addition, Powell’s speech on Friday is likely to increase market volatility.

Key EUR/USD events today

EUR/USD Technical Forecast: Bears could bounce back after a solid rally

From a technical point of view, the EUR/USD price is in a well-developed bullish trend. The price made a series of higher highs and lower lows. At the same time, it respected the 30-SMA as support, breaking higher each time it revisits the line. Meanwhile, the RSI is trading in the overbought region, indicating massive upside momentum.

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The price recently broke above the 1.1050 resistance level. The bulls are now eyeing the next hurdle at the 1.1150 level. However, the price has been in a solid move without a break. Therefore, the bears may soon overcome the bulls to retest the 30-SMA before the uptrend continues.

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