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Buying and selling forces were balanced in the short term on the Euro/Dollar currency pair, as important monetary deadlines approached on both sides of the Atlantic.
Starting tomorrow, the outcome of the meeting of a Fed Monetary Policy Committee will liven up the week of foreign exchange traders. A 25 basis point cut in the main key rates is the preferred working hypothesis.
Guy Stear, Head of Developed Markets Strategy at the Amundi Investment Institute predicts that “the US Federal Reserve will make rate cuts in October, in December, then twice more during the second quarter of 2026.”
“But the market also anticipates it, and the more interesting question is whether the Fed press conference will support the very aggressive cuts embedded in the curve through early 2027. Another point that is now just as important: the way in which the Fed plans to respond to the drop in liquidity in the short term, given the significant sovereign debt issues in recent months. If the US Federal Reserve fails to meet very aggressive market expectations for rate cuts, we could see a modest rise in 2-year Treasury bond yields, but they could also be sustained, if the Fed begins to increase liquidity in the system.
The next day, it will be the turn of the ECB to complete its Board of Governors, the equivalent of the FOMC. “The ECB Governing Council will most likely decide to keep rates unchanged at its meeting on Thursday,” says Felix Feather, economist for Aberdeen.
“With the decision on rates almost certain, attention will focus on how it is presented, including any clues about the future path of monetary policy.”
“Market pricing suggests that the ECB will stay around 2% for quite some time, and we share this view. Christine Lagarde will likely describe monetary policy as “well positioned”, to suggest that the Council sees no urgency to change the current framework. She will probably also have to answer some tricky questions about the ECB’s balance sheet policy, given that the US Federal Reserve (Fed) is expected to announce the end of its quantitative tightening (QT),” continued the economist.
On the macroeconomic level, the IFO business climate index in Germany rose slightly yesterday to 88.4, narrowly beating expectations. It is the “expectations for the coming months” component which contributes the most to this encouraging score, contributing to the relative good performance of the single currency.
Just like relatively encouraging signals for trade between Washington and Beijing. “The week should also be marked by the meeting between Donald Trump and Xi Jinping, the first since the start of the trade war, following the announcement of a preliminary framework agreement this weekend by Scott Bessent. If it seems unlikely that a formal agreement will be signed on Thursday, this meeting at least illustrates the desire of the two leading world powers to avoid a new escalation. Even if, with Donald Trump, everything remains possible”, summarizes Thomas Giudici, head of bond management at Auris Gestion.
The asset management decision-maker takes advantage of his weekly note to note that “concerns about private credit in the United States, following the bankruptcies of First Brands and Tricolor, did not last long. Despite the size of this market ($1.2 trillion in the United States alone) and the deterioration of the most fragile issuers, investors do not (yet) see a systemic risk.”
At midday on the foreign exchange market, the Euro was trading against $1.1660 approximately.
KEY GRAPHIC ELEMENTS
The bullish oblique that prevailed until now (in black on the chart) is now broken, with pullback confirmation. The negative view is offered under this oblique, while the relative strength index collapses. The 20-day moving average (in dark blue) has just broken the trajectory of its 50-day counterpart (in orange) at a significant angle.
MEDIUM TERM FORECAST
Considering the key graphical factors that we have mentioned, our opinion is negative in the medium term on the Euro Dollar (EURUSD).
Our entry point is at 1.1660 USD. The price target for our bearish scenario is at 1.1013 USD. To preserve the invested capital, we advise you to position a protective stop at 1.1761 USD.
The expected profitability of this Forex strategy is 647 pips and the risk of loss is 101 pips.
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