EUR/USD Gains on Dollar Weakness Amid Fed Rate Cut Expectations

EURUSD

Prediction: Increase

Fundamental Analysis

The EUR/USD pair is seeing modest gains near 1.0880 during early Asian trading on Tuesday as the U.S. Dollar eases in anticipation of the upcoming presidential election and a likely rate cut from the Federal Reserve. After Friday’s dip, the pair rebounded to fresh highs around 1.0910-1.0915, slightly above the 200-day Simple Moving Average (SMA) of 1.0870. The U.S. Dollar Index has dropped to two-week lows below 104.00, reflecting muted movement in both U.S. and German bond yields. Market sentiment largely expects the Fed to implement a 25-basis-point rate cut later this week, driven by ongoing disinflation and a cooling labor market. Meanwhile, after the European Central Bank's recent rate cut to 3.25%, it remains cautious about future actions. Notably, speculative net shorts on the euro have increased to over 50K contracts, signaling growing bearish sentiment toward the currency.

Technical Analysis

If the pair gains further, it could test the November high of 1.0914, with additional resistance at the 100-day and 55-day SMAs positioned at 1.0938 and 1.1012, respectively. Beyond these levels, the next key targets are the 2024 peak of 1.1214 and the 2023 high of 1.1275. On the downside, the pair finds initial support at October’s low of 1.0760, followed by the 1.0700 level and June’s low of 1.0666. Sustained movement above the 200-day SMA would enhance the pair's bullish outlook. The four-hour chart suggests the rally may continue, with support near 1.0760 and resistance at 1.0914. The RSI has moderated to around 54, leaving room for further movement.

XAUUSD

Prediction: Decline Expected

Fundamental Analysis: 

Gold prices are hovering close to a one-week low, with the latest drop limited by sustained safe-haven demand stemming from uncertainties around the U.S. election and potential retaliatory actions by Iran toward Israel. On Monday, investor sentiment was cautious, with XAU/USD holding near Friday’s close of $2,736 per ounce, as many leaned towards higher-yield assets. The U.S. presidential election, set for Tuesday, is weighing on market dynamics, with investors considering whether the Federal Reserve will maintain its current easing stance or pivot to tackle inflationary pressures. Preliminary election results are anticipated by early Wednesday.

Global markets were mixed: Japan's Nikkei 225 dropped significantly, while other Asian indices made gains. In the U.S., major Wall Street indexes experienced declines after an initial mixed performance, driving a shift toward safe assets. This week’s schedule includes critical monetary policy updates from the Reserve Bank of Australia on Tuesday, followed by announcements from the Bank of England and the Federal Reserve on Thursday. As the U.S. session continues, the Dollar has gained amid heightened risk aversion, although XAU/USD remains range-bound.

Technical Analysis: 

On the daily chart, XAU/USD shows weakening bullish momentum, though the broader trend remains positive. The pair is trading above its key moving averages, with the 20 Simple Moving Average providing immediate support around $2,705.00. The 100 and 200 SMAs continue to rise below, indicating underlying buyer strength. While technical indicators have softened, they remain above their midpoints, suggesting limited downside potential.

In the short term, the 4-hour chart signals increasing seller pressure. Technical indicators are firmly in negative territory, and the 20 SMA is trending downward. A break below the key support at $2,730 could trigger further declines for XAU/USD.

GBPUSD

Prediction: Decrease

Fundamental Analysis:

The GBP/USD pair is holding steady around 1.2950 in early Asian trading on Tuesday, with traders closely monitoring the outcome of the U.S. presidential election. Later this week, attention will turn to key monetary policy decisions from both the Bank of England and the U.S. Federal Reserve.

GBP/USD opened the week on a positive note, showing gains towards 1.3000 after ending a five-week losing streak. This rise is partly attributed to a weaker U.S. Dollar, driven by election-related uncertainty. Betting site PredictIt currently suggests a slight edge for Kamala Harris, giving her a 51% probability of victory over Donald Trump, marking her first lead since early October.

U.S. stock index futures are mixed, reflecting a cautious sentiment among investors who may be waiting for more clarity from the election. If U.S. stocks experience selling pressure at the market open, it could limit further gains for GBP/USD.

Technical Analysis:

On the 4-hour chart, the Relative Strength Index (RSI) is hovering slightly above 50, indicating mild bullish sentiment, though GBP/USD is struggling to maintain a position above 1.2980, where the 100-day Simple Moving Average is situated, showing buyer hesitation.

If 1.2980 continues to act as resistance, key support levels to watch include 1.2940, followed by 1.2900. Conversely, if GBP/USD stabilizes above 1.2980, it could encounter resistance at 1.3000, with a further target at 1.3040 if upward momentum persists.

USDJPY

Prediction: Increase

Fundamental Analysis:

USD/JPY is trading lower, staying under the 152.00 mark in early Asian trading on Monday as the U.S. Dollar faces strong selling pressure. This decline is mainly due to increased expectations of a Kamala Harris victory in the upcoming presidential election, which could result in policies that may weigh negatively on the Dollar. Meanwhile, the Japanese Yen saw some pullback from recent gains after the Jibun Bank and S&P Global reported a dip in the Manufacturing Purchasing Managers Index (PMI) on Friday, with the October PMI slipping to 49.2 from September's 49.7, reflecting a contraction in manufacturing activity.

Technical Analysis:

Currently, USD/JPY trades near 152.30. A look at the daily chart suggests the bullish trend may be weakening, as the pair has dropped below its ascending channel. However, the 14-day Relative Strength Index remains above 50, indicating ongoing bullish momentum. Resistance appears around the channel's lower boundary at 152.50; if USD/JPY re-enters this channel, it may target the upper boundary around 158.30. On the downside, the 14-day Exponential Moving Average near 151.50 offers initial support, with further support at the key 150.00 level.

 

 

 

 

 

 

 

 

 

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