EUR/USD And GBP/USD: Rally To Continue?
The Federal Reserve’s larger-than-expected 50bp rate cut from last week triggered fresh rallies in the EUR/USD and GBP/USD. The euro tested the area around 1.1190 again, whereas the cable has proved to be last week’s best performer last with a surge to a high of 1.3340.
This week is expected to be a quieter one in terms of market-moving data with only the PCE inflation on tab this Friday.
While optimism over interest rate cuts is the driver behind the newest market rally, we must admit that recession fears are not over. Furthermore, policy makers have not yet declared victory over inflation and Fed officials are not anticipating further big reductions. We will therefore keep an eye on the PCE inflation data.
EUR/USD
While the euro was unable to surge to a fresh high, the pair formatted a symmetrical triangle, suggesting the possibility of a next leg-up within the recent uptrend. Above 1.1190 it will need a sustained break above 1.1210 in order to clear the way until 1.1250 and 1.13. On the downside, a break below 1.1030 and further 1.10 could trigger accelerated bearish momentum.
GBP/USD – Pound Boost
The cable had a very strong last week after the BoE stood pat while policy makers were not pre-committing to a particular easing path. However, a 25bp rate cut is also expected from the BoE in November.
The trend is our friend and thus we anticipate a next higher target at 1.3360. A short-term support is however seen at 1.3240.
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