The euro has seen a significant decline of nearly 2.8% against the US dollar in October. This drop comes as market participants speculate on further interest rate cuts in the Eurozone. Although the European Central Bank (ECB) did not provide specific guidance on future cuts, many investors are betting on another reduction in December.
Technical Analysis of EUR/USD
The 4-hour chart indicates a strong downtrend for EUR/USD, with prices consistently trading below the 22-period Simple Moving Average (SMA). The Relative Strength Index (RSI) has also remained below the crucial 50 mark, dipping into the oversold region multiple times, signaling strong bearish momentum.
After a brief period of consolidation at recent peaks, sellers took control, pushing the price below the 22-SMA. The recent breakdown below the 1.1001 support level confirmed the bearish trend. Since then, EUR/USD has consistently made lower highs and lows, breaking below the 1.0900 support level and currently pausing near 1.0825.
At this point, market participants are waiting for more economic data. If data indicates weakness in the Eurozone, expectations for rate cuts will likely rise, putting further pressure on the euro. If bearish momentum continues, the price may only revisit the 22-SMA before falling below 1.0825.
Conversely, if there is a prolonged pause in price action due to uncertainty, the price might retest the 1.0900 resistance level before potentially resuming its downward trajectory. The bearish outlook will remain intact as long as the SMA points downward and the RSI stays below 50.
Daily Chart Insights
On the daily chart, the price action reflects a clear shift toward bearish sentiment. The price has fallen below its previous bullish trendline and is trading well below the 22-SMA, indicating a steep decline. Additionally, the RSI has entered the oversold region, reinforcing the bearish momentum.
Recently, bears have broken below the critical support level of 1.0950, with the sharp decline approaching the 1.0780 support level. Following such a rapid drop, bears might pause at 1.0780 to allow the SMA to catch up before the downtrend continues.
It is also possible that the price could pull back to retest the 1.0950 level as resistance. However, given the strong momentum, significant pullbacks are unlikely. A break below the 1.0780 support would open the door for the price to reach the next support level at 1.0674.
Key Support and Resistance Levels
Support Levels:
- 1.0825: Recent swing low on the 4-hour chart.
- 1.0780: Swing low and trendline support on the daily chart.
- 1.0674: Daily chart swing low and trendline support.
Resistance Levels:
- 1.1001: Key support and resistance level on the 4-hour chart.
- 1.0950: Range resistance level on the daily chart.
- 1.0900: Recent 4-hour support now acting as resistance.
Fundamental Analysis of EUR/USD
The fundamental outlook for the EUR/USD pair remains bearish. The European Central Bank’s recent decision to lower interest rates by 25 basis points has weighed heavily on the euro. Although economists initially anticipated rate cuts in September and October, the economic landscape has shifted, leading to increased expectations for further reductions.
The Eurozone economy is experiencing significant slowdown, with recent data on business activity negatively impacting the euro. Additionally, inflation has fallen to 1.8%, below the ECB’s target. Most major central banks are now focused on maintaining growth after a period of high interest rates, while also keeping inflation within healthy limits.
During the recent meeting, ECB President Christine Lagarde hinted at the possibility of another rate cut in October, but she did not provide clear guidance for the future. Analysts expect that the ECB may implement a third cut in December, leading markets to price in a total reduction of 29 basis points by the end of the year, contingent on forthcoming economic data.
Moreover, the EUR/USD has been under pressure due to a strengthening US dollar. Positive US economic data and increasing speculation regarding a potential Trump victory have bolstered the dollar. Markets are now anticipating a gradual pace for rate cuts in the US, while a Trump win could reignite inflation concerns, potentially delaying those cuts.
Final Thoughts
The EUR/USD pair is clearly in a downtrend, driven by the European Central Bank’s interest rate cuts and a weakening Eurozone economy. With inflation below the ECB’s targets and a strong dollar exerting downward pressure, the outlook remains bleak for the euro. If these conditions persist, the EUR/USD pair is likely to continue its decline.
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