EUR/USD: Employment health to dictate next rate cuts

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The Euro/Dollar gained a little height, the day after the Fed’s decision to lower its key rates by 50 basis points. This means a substantial reduction in the difference in remuneration between the two currencies of the spot. In concert, the main classes of so-called risky assets, Euro, stocks and crude, took a deep breath.

There Federal Reserve has therefore decided to start its monetary easing process by hitting hard, by lowering its key rate by 50 basis points (0.5 percentage points) to bring it from 5.50% to 5.00%. The decision was accompanied by new economic projections: the powerful monetary institution headed by J Powell has revised upwards its unemployment forecasts to 4.4% for the current year and the next, and downwards its inflation forecasts for 2025 to 2.1%.

“The Fed is concerned about the continued deterioration in the labor market and has responded accordingly,” said Rob Dishner, Senior Portfolio Manager at Neuberger Berman.

“The magnitude of future cuts is uncertain and will depend on employment. This will likely increase volatility around weekly claims data, as well as monthly employment data, as any future deterioration could reintroduce a further 50 basis points (0.5%) cut.”

The next major employment event will be the release of the Non Farm Payrolls (NFP) report on October 4. Weekly jobless claims are released every Thursday at 2:30 p.m. by the Department of Labor. They are expected to remain stable this Thursday at 230,000 new claims.

This was the last meeting of the Policy Committee before the November 5 presidential election. The next FOMC meeting will be held on November 6-7.

“After significant uncertainty over the depth of the rate cut, the Fed opted for a more aggressive 50 basis point cut rather than 25 basis points. While consumption and real economic activity continue to hold up, recent weakness in key labor market indicators has refocused the Fed’s attention on the full employment aspect of its dual mandate,” says Jeff Schulze, chief economic and market strategist at Clearbridge Investments.

On the agenda this Thursday, the Bank of England’s rate decision at 1:00 p.m., and across the Atlantic, weekly unemployment benefit registrations and the Philly Fed index at 2:30 p.m., as well as sales of existing homes at 4:00 p.m.

Yesterday, currency traders took note of the final data on consumer prices in the Eurozone for the month of August, which showed no deviation from the initial estimates. Excluding volatile elements, prices rose by 2.8% in August at an annual rate.

At midday on the foreign exchange market, the Euro was trading against $1,1175 approximately.

KEY GRAPHIC ELEMENTS

In view of the reaction of the spot In contact with the bullish oblique line drawn in black, the chart pattern drawn at the turn of August loses its meaning. We are once again adopting a neutral position on the flagship currency pair.

MEDIUM TERM FORECAST

Considering the key graphic factors that we have mentioned, our opinion is neutral in the medium term on the Euro Dollar (EURUSD) parity.

We will maintain this neutral opinion as long as the Euro Dollar (EURUSD) parity rates are positioned between the support at 1.1012 USD and the resistance at 1.1250 USD.

DAILY DATA CHART