• Fed policymakers have gradually gained confidence that inflation will reach 2%.

• Markets are pricing a 50-bps or 25-bps rate cut in September.

• On Tuesday, ECB’s Olli Rehn said that the central bank should cut rates in September.

The EUR/USD forecast shows increased bullish momentum as the dollar extends its decline against the euro amid increased Fed rate cut expectations. The euro rose despite an ECB official calling for the central bank to cut rates in September.

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The euro has surged recently as investors fully priced in September’s first Fed rate cut. Initially, ECB policymakers had been more dovish than the Fed. Consequently, the ECB was among the first central banks to cut interest rates. Since then, policymakers have taken a cautious tone as inflation has stalled.

Meanwhile, Fed policymakers have gradually gained confidence that inflation will reach 2%. At the same time, markets are pricing a 50-bps or 25-bps rate cut in September. However, there is a higher chance the Fed will implement the smaller cut. The US economy has slowed down significantly. However, like last week’s retail sales report, there are still pockets of strength. Consequently, the Fed might opt for a more gradual pace of rate cuts.

Meanwhile, ECB’s Olli Rehn said on Tuesday that the central bank should cut rates in September due to the recent weakness in the Eurozone economy. He became one of the first officials to clearly guide the future. Economists believe the European Central Bank will cut rates in September and December.

Market participants eagerly await the Fed minutes for more guidance on the rate cut outlook. Furthermore, Powell’s speech on Friday will likely increase market volatility.

EUR/USD key events today

• FOMC Meeting Minutes

EUR/USD technical forecast: Bears could return after the solid rally

On the technical side, the EUR/USD price is in a well-developed bullish trend. The price has made a series of higher highs and lows. At the same time, it has respected the 30-SMA as support, bouncing higher every time it revisits the line. Meanwhile, the RSI trades in the overbought region, indicating massive bullish momentum.

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The price recently broke above the 1.1050 resistance level. Bulls are now eyeing the next hurdle at the 1.1150 level. However, the price has been on a solid move without pausing. Therefore, bears might soon overpower bulls to retest the 30-SMA before the uptrend continues.

https://www.forexcrunch.com/blog/2024/08/21/eur-usd-forecast-dollar-dips-with-fed-rate-cut-on-horizon/