- The Euro attempted to rebound on Friday, but its gains did not exceed the 1.0869 level, recovering from the significant losses it suffered last week, reaching a support level of 1.0810, the lowest for the currency pair in more than two months.
- Moreover, the Euro/Dollar recorded its third consecutive weekly decline as markets raised their expectations for further interest rate cuts by the European Central Bank.
The European Central Bank cut interest rates for the third time this year, indicating improved control over inflation but a deterioration in the economic outlook for the eurozone. In this regard, the comments of the European Central Bank President Christine Lagarde were interpreted as a downgrade of economic expectations, which prompted financial markets to price in a 25-basis point rate cut at each meeting until mid-2025. A 25-basis point rate cut is fully expected in December, with a 25% chance of a larger 50 basis point cut.
Conversely, strong US economic data has reduced expectations of interest rate cuts by the Federal Reserve.
What will affect the Euro/Dollar today
In addition to the future of central bank policies and according to economic data results, in the United States, preliminary estimates of the S&P Global Purchasing Managers' Indices will provide a first look at the performance of the private sector in October. Also, Durable goods orders are expected to decline by 0.9% in September, following a flat reading in August. Additionally, it will be interesting to follow existing and new home sales, final readings of the University of Michigan US Consumer Sentiment Index, and regional manufacturing indices including the Richmond Fed Manufacturing Index, the Chicago Fed National Activity Index, and the Kansas City Fed Manufacturing Index.
A number of US Federal Reserve officials are also scheduled to appear. On the corporate front, the earnings season will continue with major companies such as Tesla, Coca Cola, 3M, General Motors and Verizon releasing their quarterly reports.
In Europe, preliminary PMI estimates will provide key insights into economic performance for October. The eurozone is likely to see a continued contraction in manufacturing, while growth in the services sector is expected to accelerate modestly. In Germany, the manufacturing slowdown is set to deepen, with services growth slowing. France is expected to see a continued contraction in both sectors.
Meanwhile, Germany’s Ifo business climate index is expected to remain unchanged at an eight-month low in September, while French consumer confidence could decline. However, consumer sentiment in the eurozone is expected to improve, reaching its highest level since February 2022.
According to Forex Market, EUR/USD hit its lowest level since early August after the European Central Bank cut interest rates, hinting at further cuts due to a slowing economy. The decline was also driven by higher-than-consensus US retail sales, which widened the fundamental gap between the expectations facing the eurozone and the US.
Moreover, with the Relative Strength Index (RSI) now in oversold territory (as indicated by a reading below 30) and the October decline tracking the full extent of the August rally, it may be time to stay neutral. Technically, Near-term support lies at 1.0778, the low from early August. A deeper decline in a repeat of 2016 cannot be ruled out if US yields gain upward momentum after the presidential election.
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EUR/USD Technical analysis and forecast:
Technically, EUR/USD has now broken below its 200-day moving average (DMA) – which represents a deterioration in the medium-term trend. It suggests that the exchange rate has entered a longer-term downtrend. At the same time, the 200-day moving average is also now acting as a resistance area for any subsequent recovery that may follow the exhaustion of the frenzied October sell-off.
Thus, although the decline may reach its limits in the short term, the prospects for a material recovery appear relatively limited at this stage.EUR/USD
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