EUR/USD Price Analysis – Sep 25, 2023

Daily Price Outlook

During the early European session, the EUR/USD pair struggled to gain momentum and remained stuck in a narrow trading range around the mid-1.0600s. However, the reason for its decline can be attributed to the Federal Reserve's hawkish outlook, which is boosting the US Dollar and limiting the Euro's gains. Besides this, the ongoing concerns about a looming recession and the European Central Bank's dovish approach to interest rate hikes were adding downward pressure on the EUR/USD pair.

Strong US Dollar and Its Impact on EUR/USD Pair

The broad-based US dollar maintained its upward ground and hitting a six-month high due to the Federal Reserve's hawkish stance. it is worth noting that the Fed recently confirmed that it plans to keep interest rates high for an extended period and expects to raise rates again by the end of the year to tackle persistent inflation. Furthermore, the Fed's projection of two rate cuts in 2024, down from the previous estimate of four, supports higher US Treasury bond yields. Notably, the two-year US government bond yield is at its highest level since 2006, and the 10-year Treasury yield is near a 16-year peak.

These factors, along with concerns about a property market crisis in China, bolster the safe-haven US Dollar and contribute to the EUR/USD pair losses.

ECB's Cautious Stance and Its Impact on EUR/USD Pair

Another factor that has been impacting the EUR/USD pair is the European Central Bank's (ECB) cautious stance on interest rates, which is pulling down the shared currency. Last Thursday, the ECB made a dovish rate decision, which has put pressure on the Euro and prevented the pair from recovering from a multi-month low. Meanwhile, ECB lowered its forecasts for inflation (CPI) and economic growth (GDP) in 2024 and 2025.

Moreover, the Eurozone's Purchasing Managers' Index (PMI) released on Friday showed that the manufacturing sector is still struggling, which raises concerns about the possibility of an economic downturn in the second half of the year. Therefore, these developments strengthen the belief that further interest rate hikes are unlikely, which weighed on EUR/USD currency pair.

EUR/USD - Technical Analysis 

The EUR/USD pair is currently hovering around the pivotal support level of 1.0635. We anticipate a breach of this level to validate the continuation of its bearish trajectory, with an ensuing target at 1.0515.

The Stochastic oscillator is generating bearish indications, enhancing the likelihood of the anticipated decline. This is further reinforced by the downward pressure exerted by the EMA50.

However, a surge beyond 1.0680 would negate this bearish perspective and might prompt the pair to undertake recovery efforts, aiming for the 1.0785 region before any subsequent downturn. Today's projected trading range is delineated between the support at 1.0560 and the resistance at 1.0700. (edited)