There’s a bearish sentiment surrounding the EUR/USD as we await the European Central Bank’s (ECB) monetary policy announcement on Thursday. Even with some strong economic indicators coming out of the Eurozone earlier in the day, any efforts to recover were limited around the 1.1635 mark. Eventually, the pair dipped to a new two-week low, dropping below 1.1580 as this update was being prepared.
The eurozone’s preliminary GDP figures indicated an economic growth acceleration to 0.2% for the third quarter, which was better than the anticipated 0.1%. Additionally, economic sentiment is up more than expected, and there’s also been an uptick in confidence within both the industrial and service sectors.
On the U.S. side, President Donald Trump mentioned having had an “excellent” meeting with Chinese President Xi Jinping on Thursday. The U.S. plans to reduce tariffs on Chinese imports, while China will continue its rare earth trade and resume buying U.S. soybeans, as well as stopping fentanyl trafficking.
Pres. Xi’s response was brief but recognized an agreement on key trade and economic issues. While this news was generally viewed positively, the market response has been relatively subdued.
The Federal Reserve (Fed) announced a cut in interest rates by 25 basis points (bps) on Wednesday, which was expected. However, Chairman Jerome Powell created a stir by casting doubt on whether there would be another rate cut in December. Consequently, the U.S. dollar strengthened following his press conference.
Daily digest of market moves: Euro loses ground as market sentiment worsens
- Positive remarks regarding the U.S.-China trade deal initially boosted market sentiment, allowing the euro to recover some losses early Thursday. However, that sentiment waned as some investors expressed skepticism about the durability of the deal.
- On Wednesday, the Fed’s decision to reduce rates to a range of 3.75% to 4.0% sparked divided opinions among committee members. Two dissenters voiced differing views: one wanted a larger cut of 50 basis points, and the other preferred to hold rates steady.
- In an unexpected statement, Chairman Powell remarked that the path ahead was “not a foreseeable conclusion” as rising inflation coupled with increasing unemployment presented conflicting policy needs. As a result, investors shifted expectations from a December rate cut to a possible January cut, strengthening the U.S. dollar.
- For the eurozone, the preliminary GDP growth in the third quarter rose to 0.2%, surpassing expectations of 0.1%. Compared to a year ago, regional growth slowed from 1.5% to 1.3%, but still outdid market expectations of 1.2%.
- The European Commission’s economic sentiment index climbed from 95.6 in September to 96.8 in October, exceeding the consensus of 95.7. Industrial business confidence improved from -10.1 to -8.2, again surprising expectations, while service sector sentiment increased from 3.7 to 4, contrary to a predicted drop. Consumer confidence held steady at -14.2.
- The unemployment rate in September matched market expectations, remaining unchanged from the previous month at 6.3%.
- Germany’s preliminary GDP figures indicated a slowdown, following a contraction of 0.3% in the previous quarter. Annual GDP rose to 0.3%, aligning with forecasts after experiencing a 0.2% decrease in the second quarter.
- All eyes are on the ECB’s monetary policy decision set for 1:15 p.m. Japan time. While it’s expected that deposit facility rates will remain at 2%, there’s interest in whether this will be the final rate or if there is room for further easing.
Technical analysis: EUR/USD breaks below triangle pattern
The EUR/USD’s attempts at recovery have been hindered, remaining stuck at the support level around 1.1630, which gives bears a glimmer of hope. The pair has confirmed a break of the triangle pattern below 1.1580, which exposes a significant support level near 1.1545 (the lows from October 9 and 14).
Although technical indicators suggest a bearish trend, the 1.1545 level could pose some difficulty for sellers. If breached, the next target might likely shift to the round figure of 1.1500 instead of the 1.1450 level suggested by the triangle pattern.
To see a rise, the pair needs to reclaim the critical 1.1580 level (from October 29) and the session high of 1.1635, which might alleviate some of the downside pressures. Beyond that point, traders will eye the highs from October 28 and 29 in the 1.1670 region.
