The EUR/USD may face challenges due to shifts in market estimates regarding monetary policy and interest rate outlooks.
Currently, the U.S. dollar has gained ground as the likelihood of a rate cut by the hawkish Federal Reserve in November diminishes. Meanwhile, the European Central Bank is expected to intensify its monetary policy easing to boost economic growth in the eurozone.
The EUR/USD is showing signs of stability after the previous session’s gains around the 1.0860 level in Asian trading on Monday. Earlier expectations of a 50 basis point rate cut by the Federal Reserve next month have dissipated with the latest data revealing the resilience of the U.S. economy.
According to CME’s FedWatch tool, the probability of a 25 basis point rate cut in November has increased to 99.3%, up from 89.5% last week. U.S. retail sales rose 0.4% month-over-month in September, surpassing the 0.1% increase in August and exceeding market expectations of a 0.3% rise. Additionally, initial jobless claims dropped by 19,000 during the week ending October 11, marking the largest decline in three months. The total number of claims fell to 241,000, significantly below the estimated 260,000.
Research from Rabobank indicates that the market is interpreting recent comments from ECB officials as a sign that they are increasingly comfortable with Eurozone inflation estimates. Consequently, the European Central Bank appears to be shifting its focus toward supporting growth in the region. This has fueled speculation about the possibility of a faster pace of easing, including the potential for a larger 50 basis point interest rate cut. Such a move could put pressure on the euro and weigh on the EUR/USD pair.
The euro came under downward pressure following the European Central Bank’s recent decision to cut interest rates by 25 basis points. This move follows a significant decline in inflation, which peaked at 10.6% in October 2022 and has since dropped to 1.7% in September, now below the ECB’s 2% target.
EUR/USD Daily Technical Analysis for October 21st:
The EUR/USD pair has been in a strong downtrend in recent days. It has dropped from 1.1200, its year-to-date high, to 1.0855, its lowest point since August 2.
The pair has turned the support level at 1.0980, the high from March 8, into resistance. It has also fallen below both the 50-day and 200-day moving averages.
Meanwhile, the Relative Strength Index (RSI) and Percentage Price Oscillator (PPO) have continued to decline. As a result, the pair is likely to continue falling, with the next key level to watch being 1.0770. This price level aligns with the lowest swings since October 3 of the previous year.
