EUR/USD aims to claim 1.1200 as the US dollar remains on the back foot

• EUR/USD rises to near 1.1200 as the euro gains despite deepening concerns about euro zone economic growth.
• The ECB is expected to cut interest rates once in either of the other two policy meetings this year.
• The next major trigger for the US dollar will be the core US PCE inflation data for August on Friday.

EUR/USD extends its rally to near the annual high of 1.1200 in the European session on Wednesday. The major currency pair gains as the US dollar (USD) remains under pressure amid an improvement in investor risk appetite following China’s massive announcement of stimulus plans on Tuesday in a bid to revive its economy from risks increasing slowly. In general, investment flows into the US dollar decrease during periods of upbeat market sentiment.

In addition to China’s massive stimulus, increased bets on big Federal Reserve (Fed) interest rate cuts in November also kept the US dollar on the back foot. The U.S. dollar index ( DXY ), which tracks the greenback against six major currencies, edged higher on Wednesday but remains near a yearly low of 100.20.

The CME FedWatch tool shows the likelihood that the Fed will cut interest rates by 50 basis points (bps) to a range of 4.25%-4.50% rose to 60% from 37% a week ago. The Fed also kicked off its policy easing cycle on September 18 with a larger-than-usual 50 bps interest rate cut as officials worried about falling job demand.

This week, the main trigger for the US dollar will be core data on the US (US) personal consumption expenditures (PCE) price index for August, the Fed’s preferred inflation gauge, due out on Friday. The core measure of inflation is expected to have risen to 2.7% from 2.6% in July.

Ahead of the Fed’s preferred inflation gauge, investors will focus on US durable goods orders for August due out on Thursday. New orders for durable goods are expected to have fallen 2.6% from a robust 9.8% increase in July.

Daily Market Reasons: EUR/USD rises as Euro performs strongly

• EUR/USD continued to gain to near 1.1200 in European trading hours as the euro (EUR) performed strongly against its major peers despite growing concerns about euro zone economic growth. The Flash HCOB Composite Purchasing Managers Index (PMI), compiled by S&P Global and Hamburg Commercial Bank (HCOB) and released on Monday, unexpectedly fell to 48.9 in September, the lowest level since January.
• The major decline in global business activity came from a deeper contraction in manufacturing activity in major euro area economies. German HCOB Manufacturing PMI hit its lowest level since September 2023 at 40.3, extending its contraction for 27 straight months. Meanwhile, France’s HCOB Composite PMI also returned to the contraction phase after expanding in August due to the unique Olympic event.
• Going forward, the euro will be guided by market expectations regarding the European Central Bank’s (ECB) rate cut prospects for the rest of the year. The ECB is expected to cut just one interest rate at either of its two remaining meetings this year.

Technical Analysis: EUR/USD continues to rise to near 1.1200

EUR/USD is rising close to the key resistance of 1.1200 and aims to capture it in the European trading session on Wednesday. The major currency pair is offering a sharp recovery after finding strong buying interest near the 20-day exponential moving average (EMA), which is trading around 1.1100.

The outlook for the major currency pair would remain firm until it holds the breakout of the Rising Channel chart formed on a daily time frame near the psychological support of 1.1000.

The 14-day Relative Strength Index (RSI) is down to 55.00, suggesting momentum is weakening.

Looking to the upside, a decisive break above the round level resistance at 1.1200 will result in further appreciation from the July 2023 high of 1.1276. On the downside, the psychological level of 1.1000 and the July 17 high near 1.0950 will be major support areas.