EUR/USD holds near 1.0850 | 21 October 2024

EURUSD:

The EUR/USD exchange rate has remained stable following an increase in the previous session, with a value of approximately 1.0860 observed during Asian trading hours on Monday. Speculation that the Federal Reserve (Fed) might cut interest rates by 50 basis points in November has been dispelled by the latest data, which show that the US economy remains resilient.

The CME FedWatch Tool indicates that the likelihood of a 25-basis point rate cut in November has increased to 99.3%, up from 89.5% a week earlier. US retail sales increased by 0.4% in September, exceeding the 0.1% growth recorded in August and outperforming market expectations of a 0.3% rise. Furthermore, US initial jobless claims decreased by 19,000 in the week ending 11 October, representing the largest decline in three months. The total number of claims fell to 241,000, which is well below the 260,000 that had been expected.

According to research from Rabobank, the market is interpreting recent comments from European Central Bank (ECB) officials as evidence that they are increasingly comfortable with the outlook for inflation in the Eurozone. Consequently, the ECB seems to have shifted its focus towards supporting regional growth. This has prompted speculation about the possibility of an acceleration in the pace of ECB easing, including the potential for a larger 50 basis point interest rate cut. Such a move could have an adverse effect on the value of the euro and exert downward pressure on the EUR/USD exchange rate.

Following the European Central Bank's (ECB) decision to cut interest rates by 25 basis points last week, the euro faced downward pressure. This decision was taken in response to a significant decline in inflation, which peaked at 10.6% in October 2022 but then fell to 1.7% in September, below the ECB's 2% target.

Trade recommendation: Trading predominantly Buy orders from the current price level.

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