Bearish perspective
- Consider selling EUR/USD pairs with a target set at 1.1700.
- Add a stop loss around 1900.
- Timeframe: 1-2 days.
Strong opinion
- Buy the EUR/USD pair, targeting 1.1900.
- Add a stop loss at 1700.
The EUR/USD exchange rate has steadied at 1.1800 as of Tuesday morning, following a sharp decline after last Wednesday’s Federal Reserve rate decision. The stabilization seems to stem from investors buying the dip in response to varied remarks from key Fed officials.
Mixed signals from Fed officials
On Monday, several Federal Reserve officials expressed differing views after last week’s banks opted for a 0.25% rate cut.
Stephen Milan, in his first address as federal governor, defended the cuts. Yet, he mentioned that the existing monetary policy might be too tight and could jeopardize the labor market. Notably, Milan was the only governor to advocate for a 0.50% interest rate cut in the recent meeting.
Similar to Donald Trump, Milan seems to support additional cuts in future meetings. His statements might shape the next Fed appointment by the president, particularly regarding Jerome Powell’s position next year.
Conversely, Beth Hammack, another Fed official, cautioned that the focus should remain on inflation, emphasizing that the labor market is still quite strong. She highlighted data indicating low unemployment and minimal layoffs.
Furthermore, Hammack noted that headline inflation has been above 2% for the last four years, suggesting it might take at least two more years to hit the target. She is concerned that easing monetary policies could lead to economic overheating.
Statements from other Fed officials, including Michelle Bowman and Rafael Bostic, will be crucial for the EUR/USD exchange rate, alongside significant manufacturing and services PMI data from both the US and Europe.
Technical outlook for EUR/USD
In recent days, the EUR/USD exchange rate retreated from its monthly high to a low of 1.1725 following the Fed’s decision.
It then rebounded to the psychological level of 1.1800, also surpassing the 50-day exponential moving average (EMA) and other key indicators.
The pair appears to be under pressure, particularly if it falls below the critical resistance level of 1.1835, which is the highest point from July. Movement below the trendline could indicate a bearish breakout.
