This week, the foreign exchange market has been significantly influenced by the expectation of a rate cut by the Federal Reserve. The Fed is widely expected to cut rates by 25 basis points at its September meeting. The Chicago Mercantile Exchange's Fed-Watch tool shows a 100 percent chance of a rate cut. That expectation has prompted investors to adjust their portfolios, boosting the dollar. Although the dollar index (DXY) has fluctuated this week, it has generally maintained a relatively strong position.
A slew of U.S. economic data this week has been mixed. S&p Global's services and composite PMI for July came in at 56 and 55, respectively, both beating expectations, while the manufacturing PMI fell to 49.5 from 51.6, below expectations of 51.7. The U.S. goods trade account for June is estimated at -$96 billion, an improvement from -$99.4 billion the previous month but still below market expectations of -$98 billion.
U.S. gross domestic product, meanwhile, is expected to grow 1.9 percent quarter-on-quarter, up from 1.4 percent in the first quarter. The data suggest an acceleration in US economic growth. In addition, the core personal consumption expenditures (PCE), which the Fed watches, is expected to decline from 2.6% to 2.5% year-on-year. The data reflect the resilience of the U.S. economy in some areas but also point to weakness in manufacturing and easing inflationary pressures.
Global risk factors and geopolitical events have also had an important impact on the forex market. The US-China trade war, the Russia-Ukraine war, and the ongoing conflict in the Middle East have added to market uncertainty and prompted investors to seek safe haven assets. That sentiment has driven demand for safe-haven assets such as gold, which has held above $2,400 this week.
Currently, EUR/USD is finding some support at the high level, and on the daily chart, EUR/USD is squeezed between the upper limit of the declining channel and the 200-day Exponential Moving Average (EMA) of 1.0790. If the price can break the upper limit of the Bollinger band at 1.8040, EUR/USD may rise further, with targets at 1.0916 (June high) and 1.0981 (March high).
However, if the price fails to break the resistance level of 1.0840, EUR/USD may retreat to the 100-day simple moving average of 1.0824 and may test further to the low of 1.0666. The relative Strength Index (RSI) has fallen to about 53, indicating a relatively neutral market sentiment. If EUR/USD can stay above the 200-day moving average for a sustained period, there may be more upside ahead.
The AUD/USD pair traded around 0.6750 on Thursday, showing a clear bullish trend. The 14-day Relative Strength Index (RSI) also remained above the 50 level, confirming the upward momentum.
If the bulls push further and AUD/USD breaks the July high of 0.6761 (July 8), it could challenge the December 2023 peak of 0.6871 and then the July 2023 peak of 0.6894 (July 14), all ahead of the key 0.7000 mark.
On the other hand, a bearish attempt could push the pair lower, first to the June low of 0.6574 (June 10) and then to the important 200-day moving average of 0.6567. Further declines could take it back to the May low of 0.6465 and the 2024 low of 0.6362 (April 19).
