Hopes of a rate cut keep markets afloat | 17 September 2024

Event to pay attention to today:

15:30 GMT+3. USD - Retail Sales

EURUSD:

On Monday, the EUR/USD exchange rate saw a rise on the back of short-covering pressure on the US dollar. This resulted in trading above the 1.1100 price band, which had previously been a point of contention in intraday trading towards the end of last week. The market risk sentiment at the start of the new week was characterised by a sense of confidence as investors anticipate an anticipated rate cut by the Federal Reserve (Fed).

The European economic calendar is relatively inactive today, with the exception of a speech from European Central Bank (ECB) President Christine Lagarde. In the absence of significant EU data, market movements will be largely contingent on the performance of the US central bank this week.

An update on US retail sales is scheduled for release on Tuesday. However, the key data, which typically generates some volatility, is not expected to have a significant impact this week unless it deviates significantly from expectations. Analysts anticipate a slight decline in US retail sales growth for August, with the figure expected to reach 0.2% compared to July's 1.0%. Similarly, the core retail sales figure (excluding car purchases) is projected to decrease to 0.3% from 0.4%.

Investors anticipate that the Federal Reserve will commence a new round of rate cuts on Wednesday, with the focus now shifting to the magnitude of the cuts rather than their timing. CME's FedWatch tool indicates that traders anticipate a 60% probability of a 50-basis-point reduction in the federal funds rate, with the remaining 40% expecting a more modest 25-basis-point cut. It is also anticipated that rates will be cut by 125-150 bps by the end of the year, with an 80% chance of the federal funds rate reaching 400-425 bps by 18 December, versus the current interest rate of 525-550.

Trade recommendation: We follow the level of 1.1150, when fixing above it we take Buy positions, when rebounding we take Sell positions.

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