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EURUSD, DXY Analysis: Fed Rate Decision vs December 2023 Support

Article By: ,  Market Analyst
September 18, 2024 10:24 AM

Key Events:

  • Federal Funds Rate Decision
  • FOMC Statement
  • FOMC Press Conference

US Dollar August Economic Indicators:

  • ISM Manufacturing PMI: 46.8 -> 47.2 (positive)
  • US ISM Services PMI: 51.4 -> 51.5 (positive)
  • US Non-Farm Payrolls: 89k -> 142k (positive)
  • US CPI y/y: 2.9% -> 2.5% (negative)
  • US Core CPI m/m: 0.2% -> 0.3% (positive)

Market expectations for a quick transition into an easing monetary policy cycle remain conflicted. Central banks have consistently emphasized the need to keep inflation under control and proceed cautiously, despite the progress achieved. Although there is room for rate cuts, the pace of those cuts is generating uncertainty in the markets as the Fed moves towards the first cut since 2020.

Technical Outlook

EURUSD, DXY Outlook: DXY – Weekly Time Frame – Log Scale

Source: Tradingview

With markets pricing in the 25bps rate cut, the US Dollar index (DXY) has yet to break decisively below its December 2023 support. This support remains a critical area for potential bullish momentum unless a larger-than-expected cut materializes. The lower boundary of the current consolidation on the DXY chart (102 zone) serves as potential resistance for any rebound, while the July 2023 low at 99.50 acts as key support.

A break below the July support could trigger a significant drop in the DXY. Conversely, if the index climbs back inside its consolidation range, it could shift toward a neutral to bullish outlook.

EURUSD, DXY Outlook: EURUSD - Weekly Time Frame – Log Scale

Source: Tradingview

While the DXY hovers near its December 2023 support, EURUSD is trading at the corresponding December 2023 resistance level of 1.1140. Unlike the dollar index, EURUSD has managed to break through this resistance, retesting the 1.12 barrier. This level now acts as key resistance ahead of the July 2023 high at 1.13.

If the Fed opts for a 25bps cut, a potential rebound in the US Dollar could push EURUSD lower. A break below the 1.10 mark could pave the way for a retest of the upper boundary of consolidation at the 1.09 support level, with a further decline leading to a retest of the 1.0780 support level.

--- Written by Razan Hilal, CMT – on X: @Rh_waves

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