The EUR/USD pair has shown signs of regaining positive momentum during the Asian session on Thursday. This comes as the US Dollar (USD) experiences a modest downtick. The market sentiment seems to support further upward movement and investors are eagerly awaiting the release of US macroeconomic data for potential trading opportunities.
The fundamental backdrop appears to favor bulls. One key factor supporting this is the expectation that the Federal Reserve (Fed) will begin cutting interest rates in the early part of next year. As a result, US Treasury bond yields have declined, indicating a decline in the value of the US Dollar. Additionally, a modest recovery in US equity futures following an overnight sell-off further weakens the safe-haven appeal of the USD.
The EUR/USD pair is also receiving support from reduced expectations of interest rate cuts by the European Central Bank (ECB). The chief of the Slovak central bank, Peter Kazimir, stated that it is premature to discuss rate cuts. ECB policymaker Bostjan Vasle echoed this sentiment, noting that the central bank needs more time before reassessing its policy outlook. These statements contribute to a positive outlook for the EUR/USD pair.
While there is a general belief that the Fed will shift towards a more dovish stance, some Fed officials have attempted to push back against this expectation. The uncertainty surrounding the timing of the Fed’s monetary policy shift creates some uncertainty for the USD. Traders may refrain from aggressively betting against the USD until the release of the US Core PCE Price Index on Friday, as it will provide crucial information for the Fed’s future policy decisions.
Market participants are closely watching the US economic docket, which includes the final Q3 GDP print, the Weekly Initial Jobless Claims data, and the Philly Fed Manufacturing Index. These releases, along with US bond yields and broader risk sentiment, will influence the price dynamics of the USD and offer short-term trading opportunities during the early North American session.
Although uncertainties persist regarding the Fed’s monetary policy and the potential impact of US economic data, the overall fundamental backdrop seems to favor bullish traders for the EUR/USD pair. The anticipation of early interest rate cuts by the Fed and reduced expectations of rate cuts by the ECB contribute to the positive momentum. However, traders should remain cautious and closely monitor upcoming US economic releases for potential market shifts and trading opportunities.
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