EUR/USD rebounds as Dollar weakens following Trump-Harris debate – FXStreet

• EUR/USD is rising as the US Dollar falls following the Trump-Harris TV debate.
• After the debate, the general consensus was that Vice President Kamala Harris had performed better.
• The US dollar is falling as it is unlikely that President Trump will be able to implement policies favorable to the dollar.

EUR/USD is trading at the 1.1040 level, gaining ground on Wednesday amid a broader decline in the US Dollar (USD) following the televised debate between President Trump and President Harris.

Most analysts agree that Vice President Kamala Harris came out on top in the debate, with a recent BBC poll showing her approval rating of 47% compared with former President Donald Trump's 43%.

The US Dollar (USD) is weakening and as a result, EUR/USD is rising. This is because one of President Trump's policies is to protect the US Dollar's status as the world's reserve currency. This includes penalizing countries that refuse to transact in US Dollars by imposing tariffs on their goods. This policy is a reaction to the growing influence of the BRICS trading bloc and the policy of de-dollarizing the world economy.

EUR/USD Gains as Investors Debate Possibility of Big Fed Rate Cut

EUR/USD is gaining further momentum as investors continue to see a strong possibility of a larger-than-usual 50 basis points (bps) interest rate cut from the US Federal Reserve at its next meeting on September 17-18. A 25 bps (0.25%) cut is already expected, but the probability of a 50 bps “jumbo cut” is currently around 30% according to the CME FedWatch tool, which bases its forecasts on the price of 30-day Federal Funds Rate futures. A second 50 bps cut would weigh on the US Dollar by reducing foreign capital inflows, but would be bullish for EUR/USD.

US inflation data release

Wednesday sees the release of August U.S. Consumer Price Index (CPI) data that would normally influence expectations for Fed rate cuts, but analysts are divided on how much of an impact they expect the data to have, with some saying inflation is so low right now that it's irrelevant.

“The (CPI) numbers are no longer as overwhelmingly important as they were a few months ago,” said Ulricht Reutmann, FX analyst at Commerzbank. “The battle against inflation appears to have been won, with core consumer price inflation rising just 1.6% (annualized) over the past three months, well below the level compatible with the Fed's target,” he added.

However, Elias Haddad, senior market strategist at Brown Brothers Harriman (BBH), said: “U.S. inflation came in better than expected in August, reducing the likelihood of a big cut in the federal funds rate in September, which could support a stronger U.S. dollar.”

Meanwhile, Deutsche Bank's Jim Reed pointed to the sharp drop in oil prices in recent days as a key deflationary factor, with WTI crude now trading in the mid-$60s a barrel. “From the Fed's perspective, one trend that will help take some of the inflationary pressures away is the sharp drop in oil prices in recent weeks,” he said on “The Early Morning Read.”

Eyes on the ECB meeting

However, any gains in EUR/USD are likely to be limited by growth concerns in the Eurozone, particularly in Germany, which is experiencing a widely reported slowdown in manufacturing, particularly in its key automotive sector, due to foreign competition.

The European Central Bank (ECB) is due to finish its policy meeting on Thursday, with the consensus forecast being that it will cut the Deposit Facility Rate (DFR), the interest rate paid to banks that deposit money with the ECB, by 25 basis points in an effort to stimulate growth. The cut would bring it down from 3.75% to 3.50%.

The ECB Already announced The central bank plans to narrow the spread between the DFR and the key refinancing operation rate (MRO) from 50bps to 15bps (since September 18), implying that the central bank will also significantly cut the key rate, the MRO, at its meeting on Thursday. Given that the MRO is currently at 4.25%, narrowing the spread over the DFR to just 15bps would require a 0.60% cut in the MRO to 3.65%.

While the changes have already been communicated to the market, there is still a risk that the euro could weaken following the announcement. However, the most volatile potential outcome will be the latest macroeconomic forecasts, with the risk that the ECB will cut its growth forecasts. Such a move would weigh on EUR/USD.

“Weakening euro area economic activity suggests there is a risk that ECB policy adjustments will lead to lower inflation and real GDP growth forecasts, which could lead to a downward adjustment in euro area interest rate expectations relative to the euro,” said Elias Haddad, senior market strategist at Brown Brothers Harriman (BBH).

Technical analysis: EUR/USD continues to make new lows

EUR/USD has been generally declining since peaking at 1.1202 on August 26. Despite a reversal in the uptrend from September 3 to 6, the pair continues to make new lows, most recently dropping to 1.1017 on Wednesday. Therefore, the pair is probably in a downtrend, and as the “trend is on our side,” we can say that a drop in prices is likely ahead, even though the downtrend is not strong.

EUR/USD 4-hour chart

A drop below 1.1017 would confirm further declines, but it is not long before the price reaches the integral and crucial psychological support level of 1.1000.

Further weakness could send the pair falling to 1.0941, the 0.618 Fib retracement of the August rally, where it is also likely to find strong support.

At the same time, the risk of a recovery remains: for example, the Relative Strength Index (RSI) has surged out of the overbought zone, sending out a buy signal, and if the ongoing countertrend reaction continues, there is still a chance that the pair could rally to the key resistance high at 1.1150.