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The probability of a U.S. interest rate cut is 94%. Is it a spring breeze for the euro or a trap for short sellers?
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Hello everyone, todayXM Foreign Exchange will bring you "[XM official website]: 94% probability of U.S. interest rate cut, a spring breeze for the euro, or a trap for short sellers?". Hope this helps you! The original content is as follows:
On Wednesday (October 15), the EURUSD traded around 1.1630 during the European session. The US dollar continued to weaken after Powell released his dovish stance the night before, and the exchange rate once again tested the Bollinger Middle Track upwards from the wide range of 1.1541-1.1918.
Fundamentals:
Powell showed a "dovish tilt" in his public speeches, and the market almost unanimously expected interest rate cuts of 25 basis points in the next two interest rate meetings. At the same time, he emphasized that concerns about the weakening of the labor market were slightly higher than the risk of inflation, and released a signal that quantitative tightening (QT) is nearing its end, saying that liquidity conditions are gradually tightening. The repricing of the path of the federal funds rate has put pressure on the US dollar: the US dollar index DXY has fallen for the second consecutive time, around 98.80. In terms of futures pricing, CMEFedWatch shows that the probability of an interest rate cut in October is about 94%, and the probability of another rate cut in December is about 93%. The narrative has shifted from "hawkish wait-and-see" to "data-driven moderate easing." In addition, Philadelphia Fed President Anna Paulson said that rising employment risks support more interest rate cuts; the September FOMC minutes also showed that most members prefer further interest rate cuts during the year, although a few members are still worried about inflation.
It’s not all smooth sailing on the euro side. The ECB faces the dilemma of "falling inflation - weakening growth": Germany's manufacturing industry is still in decline, and ZEW sentiment shows the broader euro zone vulnerability. In terms of policy statements, this week’s speeches by deGuindos, Lane, and Lagarde may hint at the pace of www.xmmen.communication on the path of interest rate cuts in 2026.Continue the tone of “data dependence and cautious advancement”. On the data agenda, if the Eurozone trade balance surplus expands on Thursday, it will provide marginal support to the euro from a current account perspective; however, structural factors such as weak credit growth, tight fiscal constraints, and industrial stagnation limit the mid- to long-term flexibility of the exchange rate.
The short-term driving force is still in the United States: Thursday's retail sales are expected to be +0.6% month-on-month. If it is stronger than expected, it will strengthen "American resilience", the dollar will stabilize, and the euro's rebound space will be suppressed; Thursday's PPI is expected to be -0.1% month-on-month. If it weakens, it will soften the Fed's path and provide upward momentum for the euro against the dollar. Wednesday's Beige Book and speeches from various officials will shape the policy narrative heading into the weekend. In terms of policy differentiation: the European Central Bank is cautiously dovish and growth is under pressure; the Federal Reserve maintains its data reliance of "hawkish wait-and-see but can cut interest rates". This means that the structure is still bearish on EURUSD, but in the window when US data is worse than expected, the conditions for a short-term technical rebound/mean reversion are met.
Technical aspect:
From the daily chart, the upper track of the Bollinger Band is 1.1863, the middle track is 1.1710, and the lower track is 1.1558. The bandwidth tends to converge after experiencing early expansion, and the price is currently in a weak rebound zone between the lower track and the middle track. The previous highs of 1.1918 and 1.1829 form an upper-level resistance cluster, and the previous lows of 1.1541 and 1.1391 form multiple static supports. MACD (26, 12, 9) DIFF - 0.0029, DEA - 0.0015, histogram - 0.0027, the overall situation is still below the zero axis but the green column has shortened, suggesting that the kinetic energy of the bears has weakened and there is an expectation of a "golden cross below the zero axis"; RSI (14) is about 46.269, which is neutral and weak, and has not yet entered overbought/oversold, which is in line with the market conditions of shock and recovery.
The K-line entity has repeatedly been in the range of 1.1558-1.1710 in the recent stage, indicating that the Bollinger mid-range 1.1710 is the short-term long-short winner; if the volume breaks through and achieves backtesting - stand firm - The continued "three-step confirmation" is expected to initiate cover towards 1.1829/1.1918. However, if it is repeatedly blocked below the mid-track, the price is likely to retrace 1.1558 or even test 1.1541. www.xmmen.comprehensive morphological language: It is still a weak recovery after the downward trend and does not yet constitute a clear reversal. 1.1710 is the "watershed" for the trend turning point.
Outlook:
Long-term path: If PPI is -0.1% or weaker and retail sales are less than +0.6%, the dollar's decline continues, and the exchange rate rising to 1.1710 becomes a high-probability event; once the exchange rate reaches 1.1710 and the backtest is effective, the technical target points to 1.1829, and it is possible to form a "shadow line capture" of 1.1918.
Bearish path: If retail sales ≥+0.6% and officials return to "resilience first" and the U.S. dollar rebounds, the EURUSD may return to the 1.1558-1.16 range and launch a flexibility test at 1.1541; if emotional resonance amplifies, 1.1391 becomes the theoretical lower edge of the "extreme emotional level".
PolicyThe divergence has not been resolved. The Eurozone's industrial stagnation and credit weakness have not yet reached an inflection point. The US's consumption resilience remains, and the structural bearishness remains. The midline needs to be transformed from idle to bullish:
1) The Eurozone’s leading indicators bottom out and rise (ZEW and PMI improve simultaneously);
2) The ECB’s www.xmmen.communication on the 2026 interest rate cut path is controllable and coordinated with the fall in inflation without suppressing the actual interest rate spread;
3) US demand slows down and the US dollar index falls below the key equilibrium.
Before these conditions are not met, the exchange rate is more likely to maintain mean reversion + event fluctuation within the horizontal channel.
The above content is all about "[XM official website]: 94% probability of U.S. interest rate cut, a spring breeze for the euro, or a trap for short sellers?" It was carefully www.xmmen.compiled and edited by the XM foreign exchange editor. I hope it will be helpful to your trading! Thanks for the support!
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