EUR/USD may draw bids on rising Fed rate cut odds
- Rising odds of an October Fed rate cut could continue to bode well for the EUR/USD pair.
- The pair may rise to 1.10 if the US ADP data prints below estimates.
EUR/USD on Tuesday eked out a 0.32% gain and could remain better bid Wednesday, courtesy of the heightened US recession fears and the resulting rise in the odds of an October Federal Reserve (Fed) rate cut.
The US Institute of Supply Management's closely-watched manufacturing index dropped to 47.8 in September, its lowest level since June 2009. The gauge contracted for the second consecutive month and confirmed that the ongoing trade tiff with China is hurting the US economy.
Tuesday’s data has bolstered the US recession fears, forcing markets to price in a higher probability of the Fed cutting interest rates in October.
As of now, the market sees a 64% chance of the Fed reducing rates by 25 basis points in October versus 40% seen before the ISM’s release.
The rate cut odds may rise further, sending the US Dollar lower if the US ADP Employment change, due at 12:15 GMT, prints below estimates. In that case, EUR/USD will likely rise to 1.10, as suggested by the pennant breakout on technical charts.
The bullish technical setup would fail if the US data beats estimates by a big margin, forcing markets to scale back Fed rate cut expectations.
As of writing, EUR/USD is trading largely unchanged on the day at 1.0937.
Technical levels
Author
Omkar Godbole
FXStreet Contributor
Omkar Godbole, editor and analyst, joined FXStreet after four years as a research analyst at several Indian brokerage companies.
