EURUSD reached 1.12 in late August, but ahead of the ECB and Fed rate decisions, the August trend appears to have ended. The pair has been moving sideways since September 2022, but it has now reached a critical point for the long-term outlook.
(EURUSD Monthly Chart)
EURUSD has been in a downtrend channel since it reached 1.60 in 2008, and this trend has worked well for traders at key points so far. However, since the 2015 dip, the price range has begun to contract, especially after the 2022 dip. Over the past two years, the pair has been stuck between 1.048 and the 23.6% retracement level at 1.1070 (based on monthly bar closes). With the latest surge, the 16-year downtrend has been tested once again. Traders are now watching to see whether the trend will hold or if the long-term prospects of EURUSD will change.
(FED – ECB 2024 Growth Forecasts)
September forecast updates from both the ECB and Fed will provide crucial guidance for the markets. Despite the U.S. economy outperforming the Eurozone over the past two years, EURUSD has managed to hold its value. Now, with U.S. recession fears emerging, this doesn’t necessarily mean the euro can capitalize, as the Eurozone still faces numerous challenges. Industry-heavy Germany is struggling, particularly as the global manufacturing sector slows, with the Eurozone being hit hardest. This has also started to affect local politics. Political risks have weakened leadership in both France and Germany. PMI numbers remain problematic, showing a rapid decline in manufacturing activity.
This uncertainty is reflected in EURUSD, as the market has yet to decide whether to continue or break the 16-year trend. During such a critical time, the ECB and Fed’s forecasts, along with any hints regarding the FOMC’s rate cut path, have gained increased importance.
