EUR/USD recovers to near 1.0850 on Friday after facing a fresh 10-week low of 1.0800 on Thursday. The outlook for the major currency pair remains bearish as the Euro (EUR) is expected to face selling pressures due to anticipated interest rate cuts by the European Central Bank (ECB). The ECB has already reduced its Rate on Deposit Facility by 25 basis points (bps) to 3.25% on Thursday, marking the second consecutive interest rate cut by the ECB this year. Further interest rate cuts are expected as ECB officials are focused on reviving economic growth while maintaining control over inflation.
In a press conference after the interest rate decision, ECB President Christine Lagarde did not provide clear cues for the next interest rate action in December but expressed confidence in the disinflation process. Traders, however, have priced in an additional 25-bps interest rate cut at the final meeting of the year. Lagarde also highlighted the potential threats to the Eurozone economy in case of a victory by former US President Donald Trump in the presidential elections, stating that any trade obstacles would be a downside for Europe, considering the highly open nature of the European economy.
EUR/USD has taken a breather on Friday after a four-day losing streak, with the US Dollar (USD) rally pausing. The US Dollar Index (DXY) is struggling to extend its upside above the immediate resistance of 103.90. The Greenback’s outlook remains firm as recent upbeat US data, including a faster-than-expected rise in Retail Sales and lower Initial Jobless Claims, indicates economic resilience. Traders expect the Federal Reserve (Fed) to implement gradual interest rate cuts instead of a larger-than-usual cut of 50 basis points (bps) in November, based on the diminishing fears of a potential slowdown.
In technical analysis, EUR/USD is striving to maintain the immediate support of 1.0800 in European trading hours after breaking below the 200-day Exponential Moving Average (EMA) earlier in the week. The downside movement started after a breakdown of a Double Top formation on a daily timeframe near the September 11 low, resulting in a bearish reversal. The 14-day Relative Strength Index (RSI) indicates strong bearish momentum, although entering oversold conditions. Support for the pair is expected near an upward-sloping trendline at 1.0750, while key resistances include the 200-day EMA and the psychological level of 1.1000.
Looking ahead, market focus will be on the US presidential elections, with a close competition between Donald Trump and Kamala Harris. FiveThirtyEight’s daily election poll tracker shows Harris leading in polls, with a 2.4-percentage-point advantage over Trump. With expectations of rate cuts by both the ECB and the Fed, as well as political uncertainties surrounding the US elections, the EUR/USD pair is set to experience continued volatility in the coming days. Traders should closely monitor economic data releases, central bank decisions, and political developments to navigate through the fluctuations in the currency markets.
