EURUSD is moving in Symmetrical Triangle and market has fallen from the lower high area of the pattern
EUR/USD Surges as US Dollar Weakens: What Traders Need to Know
The EUR/USD pair has been on the rise recently, thanks to a weaker US Dollar (USD) ahead of the US Personal Consumption Expenditures (PCE) Price Index for June. If you’re wondering why this is happening and what it means for future trading, you’re in the right place. Let’s break it down.
Why is the US Dollar Weakening?
Stronger US Economic Data
Despite the recent weakening, the US Dollar has had some robust support due to stronger-than-expected US economic data. The Gross Domestic Product (GDP) for the second quarter (Q2) showed a growth rate of 2.8%, significantly higher than the previous 1.4% and exceeding forecasts of 2%. This solid performance highlights the resilience of the US economy, even amidst high interest rates.
Additionally, the US Composite PMI (Purchasing Managers’ Index) for July rose to 55.0 from 54.8, indicating sustained growth over the past 18 months and the highest reading since April 2022. These positive economic indicators have reduced the expectations of a rate cut by the Federal Reserve in September.
Impact on the EUR/USD Pair
EUR/USD Extends Gains
As of Friday, EUR/USD trades around 1.0860 during the Asian session, extending its gains after rebounding from a two-week low of 1.0825 recorded on Wednesday. The main driver behind this upward movement is the weakening of the US Dollar ahead of the US PCE Price Index release.
European Central Bank’s Uncertain Policy Outlook
Challenges for the Euro
While the Euro is currently benefitting from the weaker USD, it faces its own set of challenges. The European Central Bank (ECB) has an uncertain policy outlook, with strong expectations of additional rate cuts. The ECB is anticipated to lower interest rates two more times this year as price pressures persist and are expected to remain at current levels throughout the year, only returning to the bank’s target in 2025.
Eurozone Economic Activity
A significant decline in Eurozone business activity, particularly in Germany, has heightened expectations for further interest rate cuts to stimulate economic growth. The German flash Composite PMI unexpectedly contracted in July, indicating a slowdown in business activity. Traders are now looking ahead to next week’s pan-EU GDP update for more insights into the Eurozone’s economic health.
EURUSD is moving in Descending channel and market has reached lower high area of the channel
What’s Next for Traders?
Awaiting Key Data Releases
Traders will be closely watching the release of the US PCE Price Index for June, as it could provide further direction for the USD and, consequently, the EUR/USD pair. Additionally, the upcoming pan-EU GDP update will be crucial in understanding the economic landscape of the Eurozone and how it might influence ECB policy decisions.
Rate Cut Expectations
Federal Reserve Outlook
According to CME Group’s FedWatch Tool, the probability of a 25-basis point rate cut at the September Fed meeting has decreased from 94.0% a week earlier to 88.6%. This shift reflects the market’s reaction to stronger-than-expected US economic data, suggesting that the Federal Reserve might not cut rates as aggressively as previously anticipated.
ECB Rate Cuts
On the other hand, the ECB is expected to continue with its rate cuts to combat persistent price pressures and stimulate economic growth. This divergence in monetary policy between the US and the Eurozone will be a key factor in the EUR/USD pair’s future movements.
Summary
The EUR/USD pair is experiencing a surge due to a weaker US Dollar, driven by anticipation ahead of the US PCE Price Index release. Despite stronger US economic data reducing some rate cut expectations, the Euro is facing challenges with an uncertain ECB policy outlook and declining business activity in the Eurozone. Traders should keep an eye on upcoming key data releases and central bank decisions to navigate the evolving landscape effectively. As always, staying informed and being adaptable to new information will be crucial for making sound trading decisions.
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