EUR/USD struggles to extend its recovery and retraces back to 1.0850 in Monday’s European session. Investors are anticipating further easing of interest rates by the European Central Bank (ECB) due to faltering Eurozone economic growth and inflationary pressures below the bank’s 2% target. ECB policymaker Madis Müller expects modest economic growth to keep price pressures contained, with the ECB’s own Survey of Professional Forecasters downwardly revising price growth to 1.9% for next year.
To gain more insight into the interest rate outlook, investors are closely watching ECB President Christine Lagarde’s speech that begins on Tuesday. Lagarde did not provide a specific interest rate path during the recent rate cut decision, stating that decisions will be data-driven. The Euro may retreat further to its 11-week low near 1.0800 as the uncertainty surrounding ECB dovish bets weighs on its outlook.
The US Dollar is expected to extend its upside after a minor correction last week, as reflected in the US Dollar Index’s fresh 11-week high near 104.00. Market expectations suggest that the Federal Reserve (Fed) will implement a gradual interest rate cut path, with a possible 50 basis points decline by the end of the year. The US economic data for September indicating resilience has bolstered confidence in a less aggressive policy-easing cycle.
With the upcoming US presidential elections, the fate of the US Dollar is expected to be highly volatile. Recent polls show Democratic candidate Kamala Harris holding an advantage over Republican nominee Donald Trump, adding to the uncertainty surrounding the currency’s outlook. Investors will be closely monitoring the preliminary S&P Global Purchasing Managers’ Index data for October on Thursday for further economic cues.
EUR/USD is holding the immediate support of 1.0800 in European trading hours despite uncertainty in its outlook. However, the pair remains below the 200-day Exponential Moving Average (EMA) at 1.0900, signaling potential downside risks. The bearish momentum is evident with the breakdown of a Double Top formation below the September 11 low, resulting in a bearish reversal.
The 14-day Relative Strength Index (RSI) indicates strong bearish momentum with a dive below 30.00, though conditions suggest a possible recovery. The pair may find support near the 1.0750 level and the upward-sloping trendline from the October 3 low around 1.0450. Key resistance levels include the 200-day EMA and the psychological figure of 1.1000 for EUR/USD.
Overall, the EUR/USD pair’s outlook remains uncertain as investors await further guidance from the ECB and monitor US economic developments and presidential elections. The Euro’s performance will be influenced by the ECB’s interest rate decisions and economic data, while the US Dollar’s direction will be impacted by the Fed’s rate cut path and political events. Traders should pay close attention to upcoming data releases and speeches for insights into future currency movements.
