The EUR/USD currency pair stayed mostly unchanged on Friday, resting at around 1.1570 and did not move much from its recent two-month low of 1.1540. Inflation data from the Eurozone didn’t offer much encouragement to investors. Meanwhile, the dollar was gathering strength, supported by a lackluster market and diminishing prospects of a Federal Reserve interest rate cut in December.
Preliminary figures for the Eurozone’s Harmonized Consumer Prices (HICP) showed a slight increase in headline inflation, moving to 0.2% from 0.1%. The year-on-year inflation rate dipped a bit, going from 2.2% down to 2.1% in September. Core inflation, however, picked up, showing a rise of 0.3% in October, compared to 0.1% in September, remaining stable at 2.4% since last October.
The dollar’s upward momentum can be attributed to the Federal Reserve’s “hawkish rate cut” decision made on Wednesday. This development caused investors to reduce their expectations for another rate decrease in December. Additionally, a trade ceasefire agreement between US President Trump and Chinese President Xi Jinping added to the dollar’s stability.
In the eurozone, the European Central Bank (ECB) kept its benchmark interest rate at 2%, meeting expectations. President Lagarde conveyed an optimistic outlook, asserting that the ECB is “in a good place” and signaling no immediate intentions for further rate cuts. Following this announcement, the euro initially appreciated but has seen limited gains since.
Daily Digest Market Trends: Dollar remains strong despite cautious market
- The dollar continued to perform well on Friday, benefiting from reduced expectations for a December rate cut, positive developments from the US-China trade negotiations, and moderate risk aversion following a drop in Wall Street stocks after earnings reports from Meta and Microsoft raised new concerns over AI valuations.
- The European Central Bank maintained its deposit facility rate at 2% for the third consecutive time at a recent meeting, with Governor Lagarde expressing confidence in economic growth while noting significant uncertainty around inflation.
- On Friday, ECB Governing Council members supported Lagarde’s optimistic stance, highlighting improved economic prospects, but they did not advocate for further rate cuts in the near term. However, the euro’s response has been muted.
- In the US, comments from Federal Reserve Chairman Jerome Powell led to a spike in US bond yields, further bolstering the dollar. The benchmark 10-year Treasury yield surged over 30 basis points since Wednesday, reaching a three-week high of 4.10%.
- Expectations for another rate cut in December dropped significantly, falling from 91% to 64.8% ahead of Wednesday’s policy decision, as reported by CME Group’s FedWatch tool.
Technical analysis: EUR/USD hovers above significant support at 1.1540
The EUR/USD pair has broken the monthly triangle pattern, and its feeble recovery attempts post-ECB decision remain below the previous support level of 1.1580, confirming a bearish outlook. The 4-hour Relative Strength Index (RSI) shows a decline yet stays above the oversold mark, while the moving average divergence indicates strong negative momentum.
The focus for sellers currently lies around the key support level near 1.1545 (recorded lows on October 9th and 14th). If this level is breached, the next target could be the round 1.1500 mark, followed by the triangle pattern’s measurement target around 1.1450.
On a brighter note, the previous support level of 1.1580, which faced declines on October 22nd, 23rd, and 28th, is now acting as resistance. Further up, the countertrend line near 1.1615 and the Thursday’s high around 1.1635 may pose challenges for buyers before approaching the highs from October 28th and 29th near 1.1670.
