EUR/USD Price Forecast: Extra gains in the pipeline

EUR/USD extended its gains for a second consecutive day at the beginning of the week, reaching new 2024 highs around 1.1080, driven by the incessant weakness in the US Dollar (USD).

On the latter, the Greenback accelerated its retracement and broke below the key 102.00 support to print new multi-month lows when measured by the US Dollar Index (DXY), at the time when investors continued to see the Federal Reserve (Fed) starting its easing cycle in September.

Following the CPI release, expectations for a half-point rate cut by the Fed next month diminished, with a smaller rate cut now seen as more likely. This view was also supported by better-than-expected results from other key US fundamentals.

Speaking about rate cuts, the CME Group’s FedWatch Tool indicates the probability of a 25 bps rate reduction at nearly 77%.

While the European Central Bank (ECB) has remained silent, Fed policymakers are expected to share their views as the September meeting approaches. On this, Neel Kashkari, President of the Minneapolis Fed, suggested that it is appropriate to consider the possibility of Fed interest rate cuts in September, citing the growing likelihood of a weakening labour market.

Should the Fed opt for larger rate cuts, the policy gap between the Fed and the ECB could narrow in the medium to long term, potentially supporting a further rise in EUR/USD, particularly as market participants anticipate two more rate cuts by the ECB this year.

However, in the long run, the US economy is expected to outperform Europe, suggesting that any sustained weakness in the Greenback might be short-lived.

Data from the CFTC Positioning Report showed that non-commercial (speculators) EUR net longs retreated to two-week lows in the week ending on August 13.

Looking ahead, the FOMC Minutes will be the salient data release this week, although investors are expected to closely follow the speech by Chair Jerome Powell at Jackson Hole, as well as the testimony before Parliament of BoJ’s Governor Kazuo Ueda.

EUR/USD daily chart

EUR/USD short-term technical outlook

Further north, EUR/USD is likely to test its 2024 high of 1.1083 (August 19) before reaching its December 2023 top of 1.1139 (December 28).

On the downside, the pair's next target is the 200-day SMA at 1.0842, then the weekly low of 1.0777 (August 1) and the June low of 1.0666 (June 26), both of which emerge before the May low of 1.0649 (May 1).

Looking at the big picture, the pair's upward trend should continue, provided it stays above the crucial 200-day SMA.

So far, the four-hour chart shows a considerable increase in the positive bias. The initial resistance level is 1.1083, which comes before 1.1132. On the other hand, there is an instant support at 1.0949 prior to 1.0881, and the 200-SMA of 1.0888. The relative strength index (RSI) increased past 77.