- Reducing expectations for further US rate cuts continues to drag on EUR/USD, with losses extending below the psychological support level of 1.0800 to the support level of 1.0792.
- Furthermore, the currency pair is at the lowest level in more than two and a half months.
- Amid this performance the US dollar index rose above 104.1 on Wednesday, recording its highest levels since early August as investors continued to reduce bets on aggressive interest rate cuts by the Federal Reserve, while preparing for the upcoming US presidential elections.
Also, the US dollar is tracking the rise in Treasury yields, with the benchmark 10-year Treasury note reaching 4.22% for the first time since late July amid strong economic data and concerns about the deficit. Now, markets are pricing in a 90% probability that the Fed will opt for a more modest 25-basis point interest rate cut in November after a hefty 50-basis point cut in September. Concurrently, Investors are looking to the Federal Reserve’s Beige Book for updates on the central bank’s economic outlook.
According to forex trading, the US dollar is hovering at multi-month highs against other major currencies, with buying activity most pronounced against the yen.
In general, financial markets have increased their expectations for further rate cuts by the European Central Bank. The ECB cut interest rates for the third time this year, citing improved inflation control but a deteriorating economic outlook for the euro zone. ECB President Christine Lagarde’s comments were interpreted as a signal of a downward revision of economic forecasts, prompting markets to expect a 25bp cut at each meeting until mid-2025.
Investors are closely watching upcoming economic data, including PMI figures, which are expected to confirm the sluggish regional performance and potentially support further ECB action. A 25bp rate cut in December is widely expected, with a 30% chance of a larger 50bp cut. Meanwhile, strong US economic data has dampened expectations of a more aggressive rate cut by the Fed.
EUR/USD Technical analysis and forecast:
No change in my technical view on EUR/USD forecast as the overall trend remains bearish and breaking the 1.0800 psychological support strengthens the bears’ control over the trend and heralds a deeper downside move. Next up will be 1.0745 and 1.0600, respectively. These are enough to push all technical indicators towards strong oversold levels. On the other hand, and on the same time frame, the daily chart will not break the bearish outlook without the currency pair first moving above the psychological resistance of 1.1000. Aslo, the euro price will be affected today by new statements from the Governor of the European Central Bank, Lagarde.
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