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EUR/USD sets to close in red for third straight week

  • EUR/USD rebounds to near 1.0850 while its outlook remains uncertain as the ECB is expected to extend its policy-easing cycle.
  • A victory of Donald Trump in the US presidential elections would significantly impact the Eurozone economy.
  • Investors expect the Fed to follow the rate-cut path gradually.

EUR/USD recovers to near 1.0850 on Friday after posting a fresh 10-week low of 1.0800 on Thursday. The outlook of the major currency pair remains bearish as the Euro (EUR) could face selling pressures on expectations that more interest rate cuts from the European Central Bank (ECB) are in the pipeline.

The ECB reduced its Rate on Deposit Facility by 25 basis points (bps) to 3.25% on Thursday. This was the second straight interest rate cut by the ECB and the third of this year. The central bank was widely anticipated to reduce interest rates further as recent commentaries from various ECB officials suggested that they are more concerned about reviving economic growth, with high confidence over inflation remaining under control.

In the press conference after the interest rate decision, ECB President Christine Lagarde did not offer any cues for likely interest rate action in December but was confident that the disinflation process is well on track. However, traders have priced in an additional 25-bps interest rate cut at the last meeting of this year.

When asked about the likely threats to the Eurozone economy from a victory of former US President Donald Trump in the presidential elections, Lagarde said, “Any trade obstacles were a ‘downside’ for Europe,” Reuters reported. She added, “Any restriction, any uncertainty, any obstacles to trade matter for an economy like the European economy, which is very open,” adding that the ECB was also “very attentive” to possible oil price moves linked to the Middle East conflict. 

Daily digest market movers: EUR/USD gains ground despite more ECB rate cuts in the pipeline

  • EUR/USD takes a breather on Friday after a four-day losing streak. The shared currency pair strives to hold its feet as the US Dollar (USD) rally appears to have paused. The US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, struggles to extend its upside above the immediate resistance of 103.90.
  • The Greenback takes a time out, while its outlook remains firm as Thursday’s upbeat United States (US) data pointed to economic resilience. The US Retail Sales data, a key measure of consumer spending, rose at a faster-than-expected pace of 0.4% in September. Also, Initial Jobless Claims for the week ending October 11 came in lower at 241K than estimates of 260K.
  • Over the past few weeks, the US Dollar has been outperforming its major peers as traders priced out market speculation of the Federal Reserve (Fed) to deliver another larger-than-usual interest rate cut of 50 basis points (bps) in November. As September US data has diminished fears of a potential slowdown, traders expect the Fed to cut interest rates gradually.
  • According to the CME FedWatch tool, traders are pricing in two rate cuts of 25 basis points (bps) in November and December, which will push interest rates lower to 4.25%-4.50% by the year-end.
  • Going forward, investors will focus on market expectations over the US presidential elections. Currently, there is a neck-to-neck competition between Donald Trump and Kamala Harris. According to FiveThirtyEight’s daily election poll tracker, Harris is leading polls and has a 2.4-percentage-point lead over Trump.

Technical Analysis: EUR/USD holds its key support of 1.0800

EUR/USD endeavors to hold the immediate support of 1.0800 in European trading hours. The major currency pair extended its downfall after breaking below the 200-day Exponential Moving Average (EMA), which trades around 1.0910, earlier this week.

The downside move in the shared currency pair started after a breakdown of the Double Top formation on a daily timeframe near the September 11 low at around 1.1000, which resulted in a bearish reversal.

The 14-day Relative Strength Index (RSI) dives below 30.00, indicating a strong bearish momentum though entering in oversold conditions. 

On the downside, the major could find support near the upward-sloping trendline at 1.0750, which is plotted from the October 3 low around 1.0450. Meanwhile, the 200-day EMA and the psychological figure of 1.1000 will be the key resistances for the pair.