- EUR/USD continues to decline, driven by Euro weakness and growing US Dollar strength.
- The Euro weakens following disappointing inflation data, while the Dollar gains support from robust jobs figures.
- Rising tensions in the Middle East have further boosted safe-haven demand for the USD.
EUR/USD remains under pressure, trading in the 1.1060s on Wednesday, after falling from 1.1135 on Tuesday, marking a 0.60% decline in a single day.
The sharp drop was partly due to weaker-than-expected Eurozone inflation data. The Harmonized Index of Consumer Prices (HICP) rose by 1.8% year-over-year in September, down from 2.2% previously and below the forecasted 1.9%. Core inflation came in at 2.7% year-over-year, slightly below August's 2.8% and lower than expectations.
This data suggests headline inflation has fallen below the European Central Bank’s (ECB) 2.0% target, with core inflation trending in the same direction. This increases the likelihood of further ECB rate cuts, which could trigger capital outflows and weaken the Euro.
Meanwhile, the Eurozone Unemployment Rate, released earlier, had little impact on the pair as it remained steady at 6.4% in August, unchanged from July and in line with expectations.
EUR/USD Declines Driven by Stronger USD
EUR/USD was also dragged lower by a stronger US Dollar, which gained traction after data showed a rise in US job openings. The JOLTS Job Openings report revealed an increase to 8.04 million in August, up from 7.71 million in July and above the expected 7.66 million.
This labor market data is significant as the Federal Reserve (Fed) has shifted its focus towards labor market concerns, offsetting weaker US manufacturing data, with the ISM Manufacturing PMI showing continued contraction in September.
In addition, geopolitical tensions in the Middle East have exacerbated safe-haven flows to the US Dollar. Iran fired around 200 missiles, including ballistic missiles, at Tel Aviv on Tuesday in retaliation for Israel's killing of Hezbollah leader Hasan Nasrallah.
Upcoming Employment Data
Key data to watch on Wednesday includes the US ADP Employment Change report for September and remarks from Fed officials, such as Governor Michelle Bowman and Richmond Fed President Thomas Barkin.
Technical Outlook: EUR/USD Testing Multi-Year Range
EUR/USD has been trading within a broad multi-year range, with resistance near 1.1200 and support around 1.0500. The pair is currently testing the top of this range but appears to be pulling back after several failed attempts to break higher.
EUR/USD Daily Chart
EUR/USD is likely in a sideways trend across all key timeframes (short, medium, and long-term). Given the technical analysis principle that "the trend is your friend," the odds favor a continuation of this sideways movement, which in this case suggests a potential pullback toward the range lows.
Currently, prices appear to be initiating a downward leg, having reached a crucial support level at the red 50-day Simple Moving Average (SMA) at 1.1041. This level is expected to temporarily slow the sell-off.
For a confirmed downward move, prices need to break below the 50-day SMA, the trendline from the last upward leg, and the swing low from September 11 at 1.1002. A close below the 1.1000 mark would provide strong bearish confirmation. The downside target for this movement would be 1.0875, aligning with the 200-day SMA, followed by 1.0777 (the August 1 low) and then 1.0600.
Momentum, as indicated by the Moving Average Convergence Divergence (MACD), has been relatively bearish over the past few days, with the blue MACD line crossing below the red signal line, further suggesting that the pair may be susceptible to additional weakness.
