- EUR/USD experiences a modest recovery as the US Dollar’s rally pauses ahead of the US CPI release.
- The Federal Reserve is anticipated to reduce interest rates by 25 basis points in November.
- Most ECB policymakers are receptive to the possibility of additional rate cuts.
EUR/USD remains under pressure as the outlook for the Euro (EUR) appears fragile. A majority of European Central Bank (ECB) officials continue to stress the necessity of further interest rate cuts due to a significant decline in Eurozone price pressures and sluggish economic growth.
In an interview with Table Media, ECB policymaker and Bundesbank President Joachim Nagel stated, “I am certainly open to considering whether we could possibly make another interest rate cut.” He also concurred with the revision of the Eurozone’s Gross Domestic Product (GDP) forecast for 2024, now projected to contract by 0.2% compared to a previous estimate of 0.3% growth.
On a positive note, Germany’s Industrial Production for August outperformed expectations, rising by a robust 2.9% month-over-month, well above the estimated 0.8% growth following a 2.4% contraction in July.
Meanwhile, ECB policymaker and Austrian central bank Governor Robert Holzmann urged caution regarding additional interest rate cuts, emphasizing that inflation has not yet been fully addressed. In September, the Eurozone’s flash Harmonized Index of Consumer Prices (HICP) slowed to 1.8% year-on-year.
Daily Digest Market Movers: EUR/USD Gains as US Dollar Eases
- EUR/USD remains under pressure below the psychological resistance level of 1.1000 in Tuesday’s North American session, as the US Dollar holds onto its gains. Investors are now focusing on the upcoming US Consumer Price Index (CPI) data for September, set to be released on Thursday.
- The inflation data is anticipated to reveal that the annual core CPI, which excludes volatile food and energy prices, has increased at a steady rate of 3.2% year-over-year (YoY). In contrast, headline inflation is projected to decelerate to 2.3% YoY, down from 2.5% in August.
- The influence of this inflation data on the Federal Reserve’s (Fed) interest rate outlook is expected to be muted, as policymakers are primarily focused on stimulating economic growth and consumer spending. Comments from Fed Governor Adriana Kugler during Tuesday’s European session indicated that she views additional rate cuts as appropriate if price pressures continue to decline.
- The outlook for the US Dollar remains strong, with financial market participants anticipating another interest rate cut from the Fed in November, likely at a size of 25 basis points (bps), according to the CME FedWatch tool. Recent market speculation for a larger 50 bps cut has diminished following the US job report for September, which indicated robust labor demand and stronger-than-expected wage growth.
Technical Analysis: EUR/USD Stays Below 20- and 50-Day EMAs
EUR/USD gains some ground near immediate support at 1.0950 but remains broadly under pressure after breaking down from a Double Top chart pattern on the daily timeframe. This pattern was triggered when the pair fell below the September 11 low of 1.1000.
The 14-day Relative Strength Index (RSI) has dropped below 40.00, suggesting that bearish momentum could intensify if the RSI remains below this threshold.
On the downside, the pair is expected to find support near the 200-day Exponential Moving Average (EMA) around 1.0900. Conversely, key resistance levels can be found at the 20-day EMA near 1.1070 and the September high around 1.1200.
