EUR/USD Drops to 1.0966 as Strong US Dollar and ECB Rate Cut Speculation Weigh

These positive data points have led traders to reassess their expectations of aggressive interest rate cuts from the Federal Reserve (Fed). Market speculation now favors a 25-basis-point rate cut for spring 2024, reducing the chances of any extreme rate adjustments in the near term. As a result, the dollar’s bullish stance has applied downward pressure on the EUR/USD pair.

$EURUSD enters a bearish consolidation phase after last week’s downfall to mid-1.0900s.
The USD preserves the post-#NFP gains to a multi-week top and caps the upside for the pair.
Bets for another #ECB rate cut in October undermine the #Euro and further act as a headwind.

— Chelton Wealth – Markets (@Xs2Chelton) October 7, 2024

ECB Rate Cut Speculation Further Weakens the Euro

The euro is struggling to find support amid growing uncertainty over the European Central Bank’s (ECB) next policy moves. There is mounting speculation that the ECB may implement another rate cut during its upcoming meeting on October 17. Concerns about stabilizing inflation in the Eurozone, which fell to 1.8% in September according to flash estimates, are driving this speculation.

This inflation rate is below the ECB’s 2% target, sparking fears that the central bank may opt for a more dovish stance. The economic outlook for Germany, the Eurozone’s largest economy, also remains bleak. The German economy is projected to shrink by 0.2% this year due to weakened demand. Additionally, ECB policymaker François Villeroy de Galhau emphasized the need for further rate cuts, citing the risk of undershooting the inflation target due to soft growth.

September’s ‘flash’ euro area CPI reading came in at 1.8% — the lowest such reading since May 2021, and increasing the odds of further rate cuts to come #FathomMacro #EuroArea #Inflation #ECB #InterestRates 1/4 pic.twitter.com/01fgpnNgEv

— Fathom Consulting (@fathommacro) October 7, 2024

Technical Outlook: EUR/USD Faces Immediate Resistance at 1.0983

The EUR/USD pair is currently trading near the 1.0966 level, with the technical outlook suggesting continued bearish sentiment. The pair remains below its 50-day Exponential Moving Average (EMA) of 1.1036. The Relative Strength Index (RSI) is at 29, indicating oversold conditions, which might lead to a corrective bounce.

However, any upside movement faces immediate resistance at 1.0983, followed by stronger barriers at 1.0999 and 1.1016. On the downside, a break below the immediate support level at 1.0951 could open the path to further declines toward 1.0938 and 1.0923. As long as EUR/USD remains below the pivot point of 1.0983, the outlook remains bearish.

In conclusion, the combination of a strong US dollar and uncertainty surrounding the ECB’s policy decisions is likely to keep the EUR/USD pair under pressure. Traders should monitor upcoming US Consumer Price Index (CPI) data for more clarity on the interest rate outlook and potential market movements.