EURUSD:
The euro is strengthening against the dollar and holding above 1.16 amid USD weakness driven by rising expectations of a Federal Reserve rate cut and ongoing U.S.–China trade frictions. The dollar index is correcting lower, and the 10-year Treasury yield is fluctuating around 4.0–4.1%, which reduces the dollar’s appeal as a defensive asset and supports the euro. An additional factor has been the softer tone from some Fed officials regarding the policy path amid signs of a slowdown in the U.S. economy.
In the euro area, the preliminary inflation estimate for September showed an acceleration of the annual rate to 2.2% y/y, which continues to bring readings closer to the target but does not resolve the question of the pace of subsequent ECB decisions. Markets assume that the difference in the speed of easing between the Fed and the ECB may remain in the euro’s favor in the near term, as the probability of a U.S. rate cut by year-end is considered high, while in the eurozone the regulator prefers a gradual approach without rushed steps.
Risks for the euro are linked to the dynamics of U.S. Treasury yields, headlines on trade negotiations, and the EU energy market. However, given the current balance of factors, the advantage lies with the European currency: a weaker dollar, relatively stable inflation expectations in the euro area, and an improvement in risk appetite.
Trading recommendation: BUY 1.1665, SL 1.1615, TP 1.1715
Origin: FreshForex
