- The EUR/USD pair remains in a weak position as the ECB is expected to cut interest rates again in December.
- ECB President Lagarde is expected to give new hints on the outlook for interest rates on Tuesday.
- Fed policymakers believe a smaller rate cut is appropriate.
EUR/USD is trading near round level support at 1.0800 in Tuesday's European session, an 11-week low. Traders are betting the European Central Bank (ECB) will factor in another rate cut at its December meeting as inflationary pressures are expected to remain within reach of the central bank's target due to increasing risks to eurozone economic growth. The euro (EUR) remains sensitive. 2%. This marks the ECB's fourth interest rate cut this year.
Germany's producer price index (PPI) fell 1.4% year-on-year in September, faster than the 0.8% drop in August, as producers raised prices for goods and services, according to data released on Monday. At the entrance of the factory, due to the slump in household spending, which has shown that it is not possible.
Peter Kazimir, president of Slovakia's central bank and member of the ECB's policy committee, said on Monday that he was increasingly confident that the disinflationary trend was maintained. But he wants to see more evidence before declaring victory over inflation.
Meanwhile, comments from Gediminas Simkus, governor of Lithuania's central bank and member of the ECB's executive board, appeared more dovish. “Once the deflation process takes hold, interest rates could fall below their natural level,” Shimkus said. The “natural level” of interest rates is between 2% and 3%.
In Tuesday's trading, investors will pay close attention to ECB President Christine Lagarde's interview with Bloomberg and her participation in a panel discussion during an International Monetary Fund meeting in Washington. Lagarde is expected to provide new guidance on interest rates.
The immediate support around 1.0800 remains fragile due to multiple headwinds, including a strong US dollar (USD) and growing dovish expectations from the European Central Bank (ECB). The US Dollar Index (DXY), which measures the value of the US dollar against six major currencies, continues to rise near an 11-week high at around 104.00. The dollar strengthened on concerns about the U.S. presidential election and growing expectations that the Federal Reserve will follow a gradual policy easing cycle.
The latest polls show former US President Donald Trump and Vice President Kamala Harish in a tight race with the election just two weeks away. Trump's victory is expected to result in higher import duties and tax cuts, which could prompt the Fed to raise interest rates further.
Meanwhile, the Fed is expected to cut interest rates by 25 basis points (bps) in November and December, according to the CME FedWatch tool. The reason behind robust speculation for a slowdown in the rate cut cycle is investment in the resilience of the US economy following strong September non-farm payrolls (NFP), ISM services PMI, and retail sales figures. This means that the trust of the family is increasing. Fed officials also believe that gradual rate cuts are appropriate.
This week, investors will focus on October's preliminary S&P Global Purchasing Managers' Index (PMI) results, which will be released on Thursday.
Daily Digest Market Trends: EUR/USD remains under pressure as traders price in December ECB rate cut
- With the US dollar (USD) strong, EUR/USD remains fragile near its immediate support at 1.0800. The US Dollar Index (DXY), which measures the value of the US dollar against six major currencies, continues to rise near an 11-week high at around 104.00. The dollar strengthened on concerns about the U.S. presidential election and growing expectations that the Federal Reserve will follow a gradual policy easing cycle.
- The latest polls show former US President Donald Trump and Vice President Kamala Harish in a tight race with the election just two weeks away. Trump's victory is expected to result in higher import duties and tax cuts, which could prompt the Fed to raise interest rates further.
- Meanwhile, the Fed is expected to cut interest rates by 25 basis points (bps) in November and December, according to the CME FedWatch tool. The reason behind robust speculation for a slowdown in the rate cut cycle is investment in the resilience of the US economy following strong September non-farm payrolls (NFP), ISM services PMI, and retail sales figures. This means that the trust of the family is increasing. Fed officials also believe that gradual rate cuts are appropriate.
- This week, investors will focus on October's preliminary S&P Global Purchasing Managers' Index (PMI) results, which will be released on Thursday.
Technical analysis: EUR/USD is expected to fall further below 1.0800
EUR/USD has struggled to maintain near-term support at 1.0800 during European trading hours. The outlook for the major currency pair remains uncertain, with the currency trading below its 200-day exponential moving average (EMA), which is trading around 1.0900.
The downside movement in the common currency pair began after the daily double top formation broke around the September 11 low of 1.1000, resulting in a bearish reversal.
The 14-day Relative Strength Index (RSI) is below 30.00, indicating strong bearish momentum. However, as the oversold situation continues, recovery measures remain.
On the downside, the major is likely to find support near the upsloping trendline at 1.0750, which was plotted from the October 3 low near 1.0450. Meanwhile, the 200-day EMA and the psychological reading at 1.1000 will be the key resistance levels for the pair.
