EUR/USD Price Analysis – Oct 21, 2024
Daily Price Outlook
During the European trading session, the EUR/USD pair is struggling to maintain its gains from the previous week and turned bearish on Monday, trading around the 1.0857 level and reaching an intra-day low of 1.0846. However, this downward trend is likely to continue, driven by the expectation that the US dollar will strengthen as modest rate cuts by the Federal Reserve (Fed) support higher US Treasury yields.
Moreover, the declines in the pair will likely accelerate as investors anticipate further interest rate easing by the European Central Bank (ECB). Market participants will closely monitor the upcoming two-day speech by ECB President Christine Lagarde, starting Tuesday.
Bearish Outlook for EUR/USD Amid ECB Rate Cut Expectations
As we mentioned above, the EUR/USD pair could face further selling pressure as investors think the European Central Bank (ECB) will cut interest rates again. The Eurozone’s economic growth is slowing, and inflation is below the ECB’s target of 2%. Many believe the bank will lower borrowing rates in December. Meanwhile, Estonian central bank Governor Madis Müller mentioned that weak economic growth could lead to lower inflation. The ECB’s recent survey also lowered next year's inflation forecast to 1.9%, down from 2%.
Moreover, Gediminas Šimkus, a member of the ECB Governing Council, shared a cautious view on interest rates. He said that if disinflation continues, rates might go below what’s considered normal. Investors will be paying close attention to ECB President Christine Lagarde’s two-day speech starting Tuesday. After the recent 25 basis point rate cut, Lagarde didn’t provide a clear plan for future rates, saying that decisions will depend on new economic data.
Therefore, the expectation of further interest rate cuts by the ECB, combined with slowing economic growth and lower inflation forecasts, is likely to weaken the EUR/USD pair.
US Dollar Strengthens Amid Rate Cut Expectations and Upcoming Elections
On the US front, the US dollar maintained its upward trend and recently reached an 11-week high near 104.00. Traders are feeling positive about the dollar's future, believing the Federal Reserve (Fed) will slowly lower interest rates. Data from the CME FedWatch tool shows that the market expects the Fed to cut rates by a total of 50 basis points this year, with 25 basis points likely in both November and December.
Meanwhile, the expectations for a slower rate-cutting approach from the Fed have grown after strong US economic data for September. Investors will be looking closely at the preliminary S&P Global Purchasing Managers’ Index (PMI) data for October, set to be released on Thursday.
Moreover, the US dollar could see some ups and downs as the presidential elections get closer. Recent polls indicate that Democratic candidate and current Vice President Kamala Harris is ahead of Republican nominee and former President Donald Trump.
EUR/USD – Technical Analysis
EUR/USD is currently trading around $1.0861, reflecting a slight downward trend of 0.04%.
On the 2-hour chart, EUR/USD faces a key resistance level around $1.0869, corresponding to the 50-period Exponential Moving Average (EMA), which continues to act as a barrier for upward momentum. Recent trading sessions indicate a slight recovery attempt in EUR/USD, bouncing off from its immediate support at $1.0835. However, price action remains constrained below a descending trendline, suggesting ongoing selling pressure.
The Relative Strength Index (RSI) at 45.13 reflects neutral conditions, with slight bearish momentum. This signals potential room for further decline if selling pressure persists. Any failure to clear the immediate resistance could lead to renewed downward movement.
If EUR/USD breaks below $1.0868, it would face the next support level at $1.0813, followed by a critical base at $1.0794. On the upside, clearing the immediate resistance would open the door to $1.0894, followed by another key hurdle at $1.0916.
Conclusion:
If EUR/USD fails to surpass the $1.0869 resistance level, traders may consider selling below $1.0868, targeting $1.0813 as the next key support. However, a stop-loss should be placed above $1.0894 to manage risk.
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