EUR/USD Price Analysis – Oct 23, 2024
Daily Price Outlook
During the European trading session, the EUR/USD pair failed to stop its downward trend and remains under pressure due to a faster-than-expected decline in inflation and increasing concerns over a potential downturn in the Eurozone economy, leading to speculation about further interest rate cuts by the European Central Bank (ECB).
Concurrently, the US dollar has strengthened, driven by various factors, including political uncertainty ahead of the upcoming US presidential election and expectations that the Federal Reserve’s (Fed) policy-easing cycle will proceed more gradually than anticipated. Investors will be particularly focused on the Fed’s Beige Book, set to be released on Wednesday at 18:00 GMT, along with speeches from several Fed and ECB members, including President Lagarde.
EUR Under Pressure as Inflation Declines and ECB Rate Cut Speculation Grows
On the EUR front, the outlook for the Euro (EUR) has worsened due to a faster-than-expected decline in inflation and rising concerns about a potential downturn in the Eurozone economy. This situation has sparked speculation about more interest rate cuts by the European Central Bank (ECB), which has already lowered its Deposit Facility Rate three times this year. Many traders expect another cut in December, prompting discussions about what level of borrowing rates would effectively control inflation while also encouraging economic growth.
Recently, some ECB officials have debated whether to lower interest rates below the so-called neutral rate, which is estimated to be around 2% to 2.25%. Lithuanian central bank governor Gediminas Šimkus highlighted concerns about inflation potentially staying too low, suggesting that if disinflation continues, rates may drop below natural levels.
Meanwhile, ECB President Christine Lagarde expressed confidence that inflation would return to the bank’s target of 2% by 2025, earlier than expected. She noted that while the direction of monetary policy is clear, the pace of future interest rate cuts will depend on incoming economic data.
Therefore, the worsening outlook for the Euro and expectations of further ECB rate cuts are likely to keep the EUR/USD pair under pressure. A weaker Euro combined with a stronger US dollar could lead to continued declines in the EUR/USD exchange rate.
US Dollar Strength Pressures EUR/USD Amid Political Uncertainty and Fed Expectations
On the US front, the broad-based US dollar (USD) is gaining strength, pushing the EUR/USD pair down to near 1.0780 level. However, this strength in the dollar is fueled by political uncertainty ahead of the upcoming US presidential election and expectations that the Federal Reserve (Fed) will adopt a more gradual approach to any policy easing than previously thought.
Market sentiment has shifted due to increasing bets that former President Donald Trump could win the election, scheduled in less than two weeks. While recent polls show Vice President Kamala Harris with a slight lead, a Trump victory could lead to higher tariffs and lower taxes, potentially pushing the Fed to adopt a more restrictive policy stance.
Currently, markets anticipate two 25 basis point interest rate cuts from the Fed in November and December. However, analysts suggest that the Fed is unlikely to implement another large rate cut like the one in September, especially since recent Nonfarm Payrolls (NFP) data indicates that labor demand remains strong. Investors are closely watching the Fed’s Beige Book release at 18:00 GMT, along with speeches from Fed and ECB officials, including President Lagarde.
Therefore, the strengthening US dollar, driven by political uncertainty and expectations of gradual Fed policy easing, is likely to continue putting downward pressure on the EUR/USD pair.
EUR/USD – Technical Analysis
From a technical perspective, EUR/USD is trading just below its pivot point of $1.08117, signaling indecision in the market and the potential for a breakout in either direction.
Immediate resistance is found at $1.08309, followed by $1.08475, and a stronger level at $1.08698. A breach of these resistance levels may trigger a broader upward move, but current momentum remains subdued.
On the downside, immediate support sits at $1.07920, with additional levels at $1.07712 and $1.07486. A break below $1.07920 would likely signal renewed selling pressure, pushing the pair toward these lower support levels.
The Relative Strength Index (RSI) is at 36, indicating mild bearish momentum, as EUR/USD remains in a consolidative phase. The 50-day Exponential Moving Average (EMA), currently at $1.08344, suggests that prices are trading below a critical threshold, reinforcing the short-term bearish outlook.
For traders, a short position could be considered if EUR/USD drops below $1.08179, with a target at $1.07716 and a stop-loss at $1.08478 to manage upside risks.
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