A crucial market moment is approaching. It's widely believed that the Federal Reserve will initiate a cycle of interest rate cuts at its meeting on Wednesday, September 17th (2:00 AM Beijing Time, September 18th). Market expectations are strong that this cut will trigger a series of rate cuts that will continue until the end of next year, making the Fed's policy outlook a key driver of the meeting. The euro remained stable against the dollar at 1.1725 during early Asian trading on Monday.



But for the euro against the dollar, some key factors may have been revealed in last week's ECB meeting - President Lagarde clearly stated that the deflationary process has ended and the eurozone economy is in good shape, which indicates that the ECB's interest rate cut cycle has come to an end, forming a sharp policy divergence from the Federal Reserve, which is about to start cutting interest rates next week and continue to implement subsequent interest rate cuts.

Technically, EUR/USD is also bullish: the pair is holding near recent highs, having previously broken through a bullish pennant and an inverse head and shoulders formation – both classic bullish signals.

The subsequent performance of the two key support levels: the 1.1675-1.1686 range played an important defensive role, eventually pushing the exchange rate to achieve a pivot conversion during the ECB meeting and CPI data release last Thursday; while the 1.1704 support level took effect on Friday morning, after the exchange rate was precisely under pressure at the resistance level and formed a short-term high at the Fibonacci 1.1748 position.

The continuous rising highs and lows formed in the short term have left ample room for a bullish breakthrough this week .

EUR/USD daily chart

The daily chart clearly demonstrates the volatility and lack of direction during the first two months of the third quarter. After reaching a new high on the first day of the quarter, the exchange rate experienced a strong pullback in July, retesting the 1.1400 level. While prices recovered somewhat in July, bulls repeatedly encountered resistance at lower highs, forming a bearish trend line.

It is worth noting that the presence of a bullish trend line also forms a symmetrical triangle pattern. Although this pattern is usually non-directional due to its consolidation pattern, it can be interpreted as a bullish pennant pattern given the strong previous uptrend.

The key breakthrough of the past week was that the bulls finally pushed up a higher high (although they did not break through the July secondary high), thus forming a resistance range of 1.1780-1.1789. If this resistance band is broken, it will open the way to a three-year high of 1.1830.

In the short term, the 1.1700 psychological level could turn into potential low support if a breakout test stagnates, but the market needs to see prices at least test the 1.1780 level for this bullish scenario to remain attractive.



(Euro/USD daily chart, source: Yihuitong)

At 8:54 Beijing time, the euro was trading at 1.1723/24 against the US dollar.