EUR/USD Price Analysis – Oct 07, 2024

Daily Price Outlook

During the European trading session, the EUR/USD currency pair continued its downward trend, remaining under pressure around the 1.0968 level and hitting an intra-day low of 1.0955. This decline can be attributed to a bullish US dollar, which is holding gains near a fresh seven-week high, driven by unexpectedly strong labor market data from the United States for September.

Moreover, the uncertainty surrounding the euro's outlook has further weighed on the pair. Speculation is growing that the European Central Bank (ECB) may consider cutting interest rates again during its monetary policy meeting on October 17. Investors are keenly awaiting the US Consumer Price Index (CPI) data for September, set to be released on Thursday, for more insight into the interest rate outlook.

Strong US Dollar and Labor Data Weigh on EUR/USD Outlook

On the US front, the broad-based US dollar (USD) remains strong, holding onto gains near a fresh seven-week high, thanks to unexpectedly positive labor market data released on Friday. The employment report indicated robust labor demand and solid wage growth, revealing that the economy added 254,000 non-farm jobs in September—significantly higher than the expected 140,000.

Additionally, the unemployment rate fell to 4.1%, down from the anticipated rate and August’s figure of 4.2%. This upbeat employment data has led traders to revise their expectations regarding interest rate cuts from the Federal Reserve (Fed). After a larger-than-usual cut of 50 basis points in September, market bets for another cut in November have diminished.

Moreover, concerns about persistent inflation grew after the release of the hotter-than-expected Average Hourly Earnings for September, which rose to 4.0% year-over-year, surpassing expectations. Month-on-month wage growth also increased by 0.4%, further reducing speculation about significant rate cuts by the Fed.

Therefore, the strong US dollar and positive labor data have put downward pressure on the EUR/USD pair, as traders reassess interest rate cut expectations from the Federal Reserve. This dynamic strengthens the dollar against the euro, leading to further declines in the currency pair.

EUR/USD Faces Downward Pressure Amid Strong US Dollar and ECB Rate Cut Speculation

Conversely, the growing uncertainty regarding the euro's outlook and increasing speculation that the European Central Bank (ECB) may cut interest rates again during its monetary policy meeting on October 17 have emerged as significant factors keeping the EUR/USD pair under pressure. Large bets on a dovish ECB are fueled by concerns that inflation in the Eurozone may stabilize below the bank's 2% target. According to flash estimates, the annual Eurozone Harmonized Index of Consumer Prices (HICP) slowed to 1.8% in September, falling short of expectations.

However, the economic outlook for Germany, the largest economy in the Eurozone, also appears weak due to soft demand. Reports indicate that the German economy is expected to shrink by 0.2% this year, as stated by the ministry led by Robert Habeck of the Green Party. In the meantime, ECB policymaker and French Central Bank Chief François Villeroy de Galhau highlighted the need for another interest rate cut in an interview over the weekend.

He cautioned about the risk of undershooting the inflation target due to weak growth and prolonged restrictive monetary policy. Meanwhile, Eurozone Retail Sales grew by 0.8% annually in August but fell short of the expected 1% increase.

Therefore, the combination of a strong US dollar and uncertainty over the Eurozone's economic outlook has increased downward pressure on the EUR/USD pair. Speculation of further ECB interest rate cuts may continue to weaken the euro, leading to potential declines in the currency pair.

EUR/USD - Technical Analysis

The EUR/USD pair is displaying subdued price action, lingering near the 1.0966 mark. The Euro's slight dip against the Dollar reflects an overall lack of momentum, with the pair trading below its 50-day Exponential Moving Average (EMA) at 1.1036.

Currently, the Relative Strength Index (RSI) stands at 29, suggesting that the pair is in oversold territory and might be ripe for a corrective bounce. However, any upside movement faces immediate resistance at 1.0999, followed by stronger barriers at 1.1016 and 1.1036.

The technical outlook remains bearish as long as EUR/USD stays below the pivot point of 1.0983. A break below the immediate support level at 1.0951 could pave the way for further declines toward 1.0938 and potentially 1.0923.

This bearish sentiment is reinforced by the continued strength of the U.S. dollar amid expectations that the Federal Reserve may delay any further rate cuts due to strong U.S. economic data.

In conclusion, the EUR/USD is likely to remain under pressure unless it can break and sustain above the 1.0983 pivot point. Traders should monitor upcoming U.S. inflation data closely, as it could significantly impact the pair’s direction.

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