EUR/USD Weekly Closing Remarks (2024/09/14)

14 sept

Weekly Closing Remarks for EUR/USD (Post-September 13, 2024):
EUR/USD closed the week on Friday, September 13, 2024, at 1.1074, maintaining a bearish bias throughout the week. The market remained cautious ahead of next week’s FOMC rate decision, set for Wednesday, September 18, 2024.

The Ichimoku cloud continues to display a bearish structure, with price action remaining below the cloud across most significant timeframes. Both the Tenkan-sen and Kijun-sen are aligned in a bearish crossover, signaling continued downward pressure. ADX readings indicate a strong bearish trend, particularly on the daily and weekly timeframes, affirming the strength of the current downtrend.

Attempts to rally during the week were short-lived, with resistance at 1.1100 - 1.1120 consistently capping price movements. MACD readings across all timeframes remain in negative territory, signaling that downward momentum is still strong.

This week's key drivers included:

1. Eurozone weakness: Ongoing economic challenges in the Eurozone, particularly concerning inflation and growth, continued to weigh on the euro.
   
2. FOMC expectations: The market is expecting a 25bps rate cut next week, keeping traders cautious and influencing USD strength, which pressured the euro further.
   

Next Week’s Forecast (Week of September 16-20, 2024):
The upcoming week will center around the FOMC rate decision on Wednesday, September 18, 2024, with markets anticipating a 25bps rate cut. However, there are still uncertainties, with three potential outcomes: no rate cut, a 25bps cut (the most likely), or a 50bps cut. Importantly, there is no expectation of a rate hike. Each scenario will have significant implications for EUR/USD.

Key Scenarios for Next Week:
Scenario 1 - 25bps Rate Cut (Market Expectation):

• The most anticipated outcome is a 25bps rate cut. In this scenario, the euro could see a brief relief rally, testing the resistance zone around 1.1100 - 1.1120. However, given the strength of the bearish trend, any rallies are likely to be short-lived, and sellers will likely re-enter around these levels.
  
• If resistance holds, EUR/USD could continue its downward trajectory, targeting the key support levels of 1.1040 - 1.1050. A break below this level could see further declines toward 1.1000, a critical psychological support zone.
  

Scenario 2 - No Rate Cut (Hawkish Surprise):

• Should the Fed decide to hold rates steady, this would come as a hawkish surprise to the market. In this case, the US dollar would strengthen considerably, exerting immediate downward pressure on EUR/USD.
  
• The pair would likely break below 1.1040, accelerating towards 1.1000. Should the downward momentum continue, the next target could be 1.0960 or lower, as the bearish trend strengthens further.
  

Scenario 3 - 50bps Rate Cut (Dovish Shock):

• A 50bps rate cut would be a dovish surprise and would likely weaken the US dollar, allowing EUR/USD to stage a more significant rally.
  
• In this case, EUR/USD could break through the 1.1100 - 1.1120 resistance zone, potentially targeting 1.1170 - 1.1180. However, the overall bearish technical setup may limit further gains, especially if the euro remains fundamentally weak.
  

Key Support and Resistance Levels:
Support
The key support level is 1.1040 - 1.1050. A break below this level would signal further downside, with 1.1000 as the next psychological support. If bearish momentum accelerates, EUR/USD could test 1.0960.

Resistance
Resistance remains firm at 1.1100 - 1.1120. If EUR/USD manages to break through this zone, the next target would be 1.1170 - 1.1180, but this will require significant bullish momentum, which is unlikely without a dovish surprise from the Fed.

Volatility Considerations:

• ATR (Average True Range) suggests that volatility is likely to increase next week, especially in the days leading up to and following the FOMC rate decision. Price movements could become more pronounced, particularly during and immediately after the announcement.
  
• Expect heightened volatility during the FOMC press conference as the market reacts to the Fed's forward guidance and any signals about future rate cuts.
  

Closing Summary:
EUR/USD is set for a potentially volatile week with the FOMC rate decision on Wednesday, September 18, 2024. The most likely outcome is a 25bps rate cut, which could trigger a short-term relief rally, but the overall bearish trend is expected to persist. If the Fed holds rates steady, expect further downside pressure, with EUR/USD likely breaking below 1.1040 and targeting 1.1000 or lower. In the unlikely event of a 50bps cut, the pair may rally towards 1.1170 - 1.1180, but upside gains would likely be capped due to the prevailing bearish sentiment.

Traders should prepare for significant price fluctuations and manage risks carefully as we head into this crucial week.