- EUR/USD is holding at 1.0800, but its outlook is unclear amid rising bets for a dovish ECB.
- Economic growth in the Eurozone is anticipated to stay modest.
- Market expectations surrounding the US presidential elections will impact the US Dollar.
EUR/USD struggles to maintain Friday’s recovery above the immediate resistance at 1.0870 in Monday’s European session. The pair is likely to continue its downward trend as the US Dollar is expected to gain strength following a minor technical correction on Friday. Last week, the US Dollar Index (DXY), which measures the Greenback against six major currencies, reached an 11-week high near 104.00 due to multiple favorable factors.
The outlook for the US Dollar remains strong as traders anticipate a gradual path of interest rate cuts from the Federal Reserve (Fed). According to the CME FedWatch tool, market expectations indicate a 50 basis point reduction in interest rates over the remaining months of the year, with projections of a 25 basis point cut in both November and December.
Expectations for a less aggressive policy easing from the Fed were bolstered by recent US economic data for September, which showed resilience. Investors will closely monitor the preliminary S&P Global Purchasing Managers’ Index (PMI) data for October, set to be released on Thursday, for further insights into the economic outlook.
Meanwhile, the US Dollar could experience significant volatility as the presidential election approaches. Recent national polls indicate that Democratic candidate and current Vice President Kamala Harris holds an advantage over Republican nominee and former President Donald Trump.
Daily Digest Market Movers:EUR/USD remains fragile amid strong expectations for ECB rate cuts.
- EUR/USD could retreat to its 11-week low near 1.0800, as investors anticipate further easing from the European Central Bank (ECB).
- With Eurozone economic growth faltering and inflation pressures falling below the bank’s 2% target, expectations for a December rate cut are mounting.
- ECB policymaker and Estonian central bank Governor Madis Müller suggested on Friday that modest economic growth would likely continue to suppress price pressures. Confidence in contained inflation has been reinforced by the ECB’s own Survey of Professional Forecasters, which downgraded next year’s price growth expectation to 1.9%, down from 2% projected a quarter ago.
- In the early European session, Gediminas Šimkus, Lithuanian central bank governor and ECB Governing Council member, provided dovish guidance on interest rates, stating that entrenched disinflation could lead to rates being lower than the natural level, as reported by Reuters.
- Investors will be paying close attention to ECB President Christine Lagarde’s two-day speech starting Tuesday for further clarity on the interest rate outlook. In her recent press conference following a 25 basis point rate cut, Lagarde refrained from outlining a specific interest rate path, emphasizing that decisions would depend on incoming data.
Technical Analysis: EUR/USD Struggles to Sustain Above 1.0800
EUR/USD is holding at the immediate support level of 1.0800 during European trading hours. However, the outlook for the major currency pair remains uncertain as it trades below the 200-day Exponential Moving Average (EMA), currently around 1.0900.
The downward movement began after a breakdown of a Double Top formation on the daily chart, falling below the September 11 low near 1.1000, signaling a bearish reversal.
The 14-day Relative Strength Index (RSI) has dipped below 30.00, indicating strong bearish momentum, but a recovery is possible as conditions become oversold.
On the downside, support may be found near the upward-sloping trendline at 1.0750, drawn from the October 3 low around 1.0450. Meanwhile, the 200-day EMA and the psychological level of 1.1000 will serve as key resistance points for the pair.
