EUR/USD Rebounds Despite USD Pressure – Fed Meeting Looms

EUR/USD Rebounds Despite USD Pressure – Fed Meeting Looms

The Euro (EUR) has staged a rebound against the US Dollar (USD), pushing EUR/USD past the initial drop near 1.0670 and setting its sights on the 1.0700 resistance level as Tuesday unfolds.

The USD continues to face selling pressure, and it's approaching a critical support level around 105.00 as tracked by the USD Index (DXY). This is occurring against the backdrop of rising US yields and caution ahead of the Federal Reserve (Fed) meeting scheduled for Wednesday.

In terms of monetary policy, investors are still digesting the dovish rate hike carried out by the European Central Bank (ECB) last week. Additionally, they maintain their expectations of potential interest rate cuts by the Fed, likely in the second quarter of 2024.

In the Eurozone's data landscape, the Current Account surplus contracted to €20.9 billion in July after seasonal adjustments, while final inflation figures for August are also anticipated later in the European morning.

Turning to the US, the housing sector takes the spotlight with the release of Housing Starts and Building Permits data for August.

EUR/USD saw a resurgence in the latter part of Monday's trading session, closing positively. However, early on Tuesday, the pair struggled to maintain its upward momentum, consolidating around the 1.0700 mark.

Following an initial bearish start, Wall Street's primary indices rebounded during the US session, creating challenges for the US Dollar (USD) to maintain its strength against other currencies. In the early European session, US stock index futures were trading slightly higher. If US stocks continue to rise after the opening bell, the USD might face difficulty finding demand, potentially allowing EUR/USD to remain stable.

Furthermore, comments from European Central Bank (ECB) Governing Council member Francois Villeroy de Galhau indicated their intent to keep the deposit facility rate at 4% "for a sufficiently long time." Additionally, policymaker Peter Kazimir mentioned, "I wish that the September rate hike was the last but I can't rule out further rate increases" on Monday. Alongside an improving risk sentiment, these somewhat hawkish comments appear to be supporting EUR/USD in the early part of the week.

Later today, the US economic calendar will feature August Building Permits and Housing Starts figures. However, in the lead-up to the Federal Reserve's policy announcements on Wednesday, investors might not attach significant weight to this data.


Our preference

Short positions below 1.0735 with targets at 1.0655 & 1.06250 in extension.