EURUSD Upside Momentum Strengthens, Focus Shifts to Extent of Rate Cut

Summary:
• EURUSD has been emboldened by the certainty surrounding September rate cut, and investors are now debating on the size of rate cuts.

EURUSD maintained its strong upturn, climbing near five-month highs on Monday. The pair was at 1.0974 at the time of writing, after rising by 0.6 percent. The euro is steamrolling the dollar courtesy of weak US economic fundamentals and certainty over multiple interest rate cuts in the second half of the year. However, many are now questioning whether such actions by the Fed could come too little too late, with mounting fears that the world’s largest economy could have entered a recession.

The US economy reported 114k Non-Farm Payrolls in July, down from 179k reported in June, and below the 176 k consensus forecast. Also, the unemployment rate jumped to 4.3 percent, exceeding the forecast rate of 4.1 percent. These figures, added to the soft PCE Index figures released earlier, all but confirmed an interest rate cut in September. As of now, markets are looking at 25 basis points cut in the next Fed meeting, with a possibility of two additional cuts afterward.

Meanwhile, the Eurozone’s July HCOB Services PMI came in at 51.9 percent, meeting forecast expectations. Monday’s EURUSD momentum will get a fresh injection from US S&P and ISM Purchasing Managers Index (PMI) figures.

Momentum indicators

The EURUSD pair signals continuation of the upside on the 2h chart. The candlesticks have stabilized above the middle Bollinger Band, with the latest bar making an attempt to intersect with the upper band. Note that the momentum is particularly sustained above the 1.0900 psychological mark. Meanwhile, the Moving Average Convergence Divergence (MACD) line is above the signal line, adding to support to the bullish view.

EURUSD support and resistance levels

EURUSD looks set to sustain the upside if it stays above the 1.0949 pivot mark. That will likely see gains to encounter resistance at 1.0976, but extended control by the buyers could strengthen the upside momentum to break above the resistance and test 1.1000. Alternatively, a break below 1.0949 will favour control by the sellers. In that case, the first support could come at 1.0924. However, if the sellers maintain control beyond that point, the resulting momentum could breach the first support, invalidate the upside narrative and potentially take EURUSD to test 1.0900.