EUR/USD has continued its downward trend, falling to near 1.0780 in European trading as the US Dollar gains strength. The Dollar Index (DXY) has risen to 104.20, fueled by political uncertainty ahead of the US presidential election. Market sentiment remains cautious as expectations of a gradual Fed policy easing cycle increase. The possibility of a Donald Trump victory is also weighing on the Euro, as his policies could result in higher tariffs and lower taxes, prompting the Fed to adopt a restrictive policy stance once again.
Market analysts are forecasting further interest rate cuts by the Fed, with expectations of two 25 basis points cuts in November and December. However, the Fed is unlikely to repeat the drastic rate cut seen in September, given that the latest Nonfarm Payrolls data indicates that labor demand has not slowed significantly. Investors will closely monitor the Fed’s Beige Book release to gain insights into the economic outlook and Fed policymakers’ views on the current situation.
Eurozone’s economy faces challenges as inflation declines faster than expected and risks of a downturn increase. The ECB has already reduced the Deposit Facility Rate three times this year and is expected to cut again in December. Speculation is rife about the possibility of lowering interest rates below the neutral level to stimulate economic growth and combat low inflation. ECB President Christine Lagarde remains optimistic about inflation returning to the bank’s target of 2% by 2025 and states that the pace of further rate cuts will depend on incoming economic data.
In terms of technical analysis, EUR/USD is trading below the 200-day EMA and has refreshed an 11-week low near 1.0780. The bearish momentum is strong, as indicated by the RSI falling below 30. However, a potential recovery is on the horizon as conditions become oversold. The pair could find support near the upward-sloping trendline at 1.0750, while the 200-day EMA and the psychological level of 1.1000 will be crucial resistance levels to watch.
Overall, EUR/USD continues to face selling pressure from the strengthening US Dollar, driven by political uncertainty and expectations of a more gradual Fed policy easing cycle. The Euro’s outlook is clouded by declining inflation and rising risks of a downturn in the Eurozone economy, leading to speculation of further interest rate cuts by the ECB. Market sentiment remains cautious ahead of the US presidential election, with investors monitoring key economic data releases and speeches from central bank policymakers for insights into future monetary policy decisions.
