- EUR/USD experiences a slight recovery, though its outlook remains uncertain amid expectations that the ECB will extend its policy-easing cycle.
- A potential victory for Donald Trump in the US presidential elections could have a significant impact on the Eurozone economy.
- Investors anticipate that the Fed will gradually move along the path of rate cuts.
EUR/USD is taking a breather on Friday after experiencing a four-day losing streak. The pair is trying to stabilize as the rally in the US Dollar (USD) appears to have paused. The US Dollar Index (DXY), which measures the Greenback's value against six major currencies, struggles to push above the immediate resistance level of 103.90.
While the USD takes a moment to consolidate, its overall outlook remains strong, bolstered by Thursday’s positive US economic data. Notably, US Retail Sales rose by 0.4% in September, surpassing expectations, and Initial Jobless Claims for the week ending October 11 fell to 241K, better than the anticipated 260K.
In recent weeks, the US Dollar has outperformed its peers as traders have adjusted their expectations regarding the Federal Reserve's interest rate decisions. Speculation about a larger-than-usual rate cut of 50 basis points in November has diminished following strong September data, leading to expectations of more gradual rate cuts. According to the CME FedWatch tool, traders are anticipating two 25-basis-point cuts in November and December, potentially lowering rates to 4.25%-4.50% by year-end.
Looking ahead, market participants are closely monitoring the upcoming US presidential elections, where the race is tight between Donald Trump and Kamala Harris. Current polls from FiveThirtyEight show Harris with a narrow 2.4-percentage-point lead.
Daily Market Movers
- EUR/USD shows a mild recovery on Friday after hitting a fresh 10-week low near 1.0800 on Thursday. However, the outlook for the pair remains bearish, as the Euro (EUR) is likely to face selling pressures due to expectations of further interest rate cuts from the European Central Bank (ECB).
- On Thursday, the ECB lowered its Rate on Deposit Facility by 25 basis points (bps) to 3.25%, marking the second consecutive rate cut and the third this year. The central bank is expected to continue this trend, as recent statements from various officials indicate a focus on reviving economic growth, with confidence that inflation remains manageable.
- During the press conference following the decision, ECB President Christine Lagarde did not provide hints about potential rate actions in December but expressed confidence in the progress of the disinflation process. Nonetheless, traders are anticipating another 25-bps cut at the final meeting of the year.
- When discussing potential risks to the Eurozone economy posed by a Donald Trump victory in the US presidential elections, Lagarde highlighted that "any trade obstacles were a downside for Europe," emphasizing that any restrictions or uncertainties could significantly impact the open European economy. She also noted that the ECB is closely monitoring possible oil price fluctuations linked to the Middle East conflict.
Technical Analysis
EUR/USD is striving to hold the critical support level of 1.0800 during European trading hours. The pair's decline accelerated after breaking below the 200-day Exponential Moving Average (EMA), which is currently around 1.0910. The downward movement began after a breakdown of a Double Top formation on the daily timeframe, triggered by the September 11 low near 1.1000.
The 14-day Relative Strength Index (RSI) has dipped below 30.00, indicating strong bearish momentum, although the pair is entering oversold conditions. Should the decline continue, support is expected near the upward-sloping trendline at 1.0750, drawn from the October 3 low around 1.0450. On the upside, the 200-day EMA and the psychological level of 1.1000 will serve as key resistance points.
