The Euro reached new 7-week highs against the US dollar on Friday, lifted by optimism over a Brexit deal, a brighter outlook for US/China trade relations and high expectations for a Fed rate cut at the end of October.
Brexit Deal
On Thursday, UK and EU leaders in Brussels declared that a Brexit deal had been achieved. However, the deal still needs to be approved by the UK Parliament and a vote is set to take place on Saturday. The prospect of an orderly Brexit served to support the European currency, amid fears of the economic region slipping into recession. Recent PMI data showed that manufacturing sentiment in the eurozone fell in September to the worst level in nearly seven years.
US/China Trade
Last Friday, the US and China agreed on the outlines of a partial trade accord. US President Donald Trump stated: "We've come to a very substantial phase one deal" and the news was viewed as a major breakthrough in the trade war that began in January of 2018. With the trade war posing a threat to the Eurozone economy through diminished global investment, news of progress served to support the euro.
October Fed Meeting
The CME Fedwatch tool currently forecasts an 87% chance of a quarter point rate cut at the Fed meeting on October 30th, the probability of a cut having jumped after Wednesday’s disappointing retail sales data. Lower interest rates make the US dollar a less appealing investment.
Technical Outlook
Looking at the daily chart we can see that EUR/USD has reached its highest levels since August 26th and has risen to a major 50% retracement level on the daily chart.
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