The EUR/USD currency pair showed signs of weakness on Thursday, trading near the 1.0850 mark amid significant selling pressure as traders await the European Central Bank‘s (ECB) interest rate decision, set to be announced at 12:15 GMT.
Market analysts predict that the ECB will implement a reduction in its Deposit Facility Rate by 49 basis points (bps) across its remaining meetings this year, with two anticipated cuts of 25 bps occurring today and in December. Should the ECB proceed with a quarter-point rate cut, it would mark the second consecutive decrease, bringing the deposit facility rate down to 3.25%.
A dovish stance from the ECB is widely expected, as the Eurozone grapples with signs of economic slowdown, while inflationary pressures appear to be stabilizing. With the expectation of further rate cuts, investors are closely monitoring the forthcoming monetary policy statement and remarks from ECB President Christine Lagarde, particularly for insights regarding potential policy actions in December.
Lagarde is likely to address strategies for stimulating economic growth, especially in light of the Eurozone’s Harmonized Index of Consumer Prices (HICP) slowing to 1.8% in September, based on preliminary estimates. Additionally, recent projections from the German economic ministry indicate that the nation may finish the year with an overall output contraction of 0.2%.
Market Overview: EUR/USD Weakens Amid Multiple Challenges
The EUR/USD pair extended its losing streak for the fourth consecutive trading day on Thursday, reaching a low not seen in over 10 weeks at approximately 1.0850. This decline comes as the US Dollar (USD) gains strength, with the US Dollar Index (DXY)—a measure of the Greenback against six major currencies—rising to about 103.60, its highest level in more than two months.
The US Dollar’s resilience can be attributed to traders scaling back expectations of aggressive rate cuts from the Federal Reserve and increasing speculation surrounding a potential victory for former President Donald Trump in the upcoming presidential elections on November 5. Market sentiment indicates that the Fed is expected to make moderate rate cuts in the remaining months of the year, driven by a robust outlook following positive Nonfarm Payroll (NFP) and Services Purchasing Managers’ Index (PMI) data for September.
Additionally, if Trump were to defeat Democratic Vice President Kamala Harris, analysts foresee the potential for increased tariffs on imports from Asian and European countries, along with tax cuts and relaxed financial conditions that could bolster the US Dollar.
Investors are also awaiting the release of the US monthly Retail Sales data for September, scheduled for 12:30 GMT, with economists forecasting a growth rate of 0.3%.
Technical Analysis: EUR/USD Dips to 1.0850
During European trading hours, EUR/USD slipped further to around 1.0850, continuing its downward trajectory after breaching the 200-day Exponential Moving Average (EMA), which hovers around 1.0900.
This decline in the shared currency initiated after the pair broke below a Double Top formation on the daily chart near the September 11 low of approximately 1.1000, signaling a bearish reversal. The 14-day Relative Strength Index (RSI) has fallen below 30.00, indicating strong bearish momentum.
On the downside, the EUR/USD pair may encounter support near the key psychological level of 1.0800 and an upward-sloping trendline at 1.0750, derived from the October 3 low of around 1.0450. Conversely, the 200-day EMA and the psychological threshold of 1.1000 are identified as critical resistance levels for the currency pair.
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