Hawkish Fed Rate Cut Tests EUR/USD, But Bulls Defend 1.1780 Support

EUR/USD pared most of its gains after the hawkish 25 bpbs rate cut by the Fed. It hit a high of 1.19187 and is currently trading around 1.18376.  Intraday trend remains bullish as long as support 1.1780 holds. 

Because of Fed Chairman Jerome Powell's cautious language, portraying it as a "risk management cut" with just two further 25 basis point reductions forecast for 2025, adding up to 75 basis points of easing. Powell stressed balancing inflation, which remains high at 3%, and employment risks despite a declining labor market with payroll gains falling to 29,000 by August. with little cause for quick action. One dissent from Governor Stephen Miran for a greater cut was found in the judgment, yet wide committee approval emphasized the cautious approach. Mixed responses in markets reflected the Fed's pessimistic view: the Dow lost initial gains, the 10-year Treasury yield rose to 4.3%, and the dollar index climbed 0.2%.

According to the CME Fed watch tool, the probability of a 25bpbs rate cut in the Oct meeting increased to 89.8% from 86.80% a week ago.

The pair is holding above the 55 EMA, 200 EMA, and 365 EMA in the 4-hour chart. Near-term resistance is seen at 1.1850; a break above this may push the pair to targets of 1.1920/1.19780/1.1200. On the downside, support is seen at 1.1780; any violation below will drag the pair to 1.1748/1.1700/1.1660/1.15750/1.1545/1.1480/1.1435.

Market Indicators and Trading Strategy

Commodity Channel Index (CCI)-  Bullish

Average Directional Movement Index (ADX) - Neutral

 It is good to buy on dips around 1.1798-80 with a stop-loss at 1.1760 for a target price of 1.1900.