EUR/USD gains as Fed meeting approaches

EUR/USD is showing signs of strengthening, currently trading around 1.1088 on Monday. The pair saw significant gains at the end of last week, driven by mounting speculation over the Federal Reserve's upcoming interest rate decision. The US dollar weakened in response to increasing expectations that the Fed might cut rates by 50 basis points in its forthcoming meeting.

The shift in market sentiment has been substantial, with the probability of a 50 basis point cut now at 45%, up from just 20% a week earlier. This anticipation has led to a decrease in US Treasury bond yields, further affecting the dollar's strength. Additionally, US import prices fell more than expected in August, decreasing by 0.3%, and export prices dropped by 0.7%. A sentiment index from the University of Michigan also showed an improvement in annual inflation expectations in September.

Conversely, the European Central Bank (ECB), which reduced its rate last week, continues to assert its independence. ECB President Christine Lagarde reiterated that the ECB operates free of political influence, responding to Italian demands for further rate reductions.

The upcoming Federal Reserve meeting, scheduled to start on Tuesday and conclude on Wednesday with a rate decision and commentary, is the focal point for markets this week. Investors are closely monitoring these developments, which could significantly impact the EUR/USD dynamics.

Technical analysis of EUR/USD

The EUR/USD market has established a consolidation range around 1.1088, extending down to 1.1073 and up to 1.1104. The market may potentially move downward to 1.1055 before possibly climbing to 1.1106, with a further stretch to 1.1128. The formation of a ‘Triangle’ technical pattern is considered likely. This scenario is supported by the MACD indicator, which is below zero but trending upward.

A growth wave to 1.1100 has been completed on the H1 chart. The market is currently forming a consolidation range around 1.1088, with a corrective structure down to 1.1073 followed by an emerging growth structure towards 1.1106. After reaching this level, a decline to 1.1055 may be considered. The Stochastic oscillator, currently below 80 and heading towards 20, supports this potential downward movement.