The EUR/USD Pair: Analyzing the Bearish Consolidation Phase
- EUR/USD enters a bearish consolidation phase after last week’s downfall to mid-1.0900s.
- The USD preserves the post-NFP gains to a multi-week top and caps the upside for the pair.
- Bets for another ECB rate cut in October undermine the Euro and further act as a headwind.
Current Market Situation
The EUR/USD pair has started the new week on a subdued note, consolidating last week’s heavy losses to its lowest level since mid-August. The pair touched this level in the aftermath of the upbeat US employment details released on Friday, with spot prices currently trading around the 1.0975 region. The recent sharp pullback from a 14-month top above the 1.1200 mark has left the pair vulnerable to further downside.
Factors Influencing the USD
The US Dollar (USD) is standing tall near a seven-week top, as traders have trimmed their bets for another oversized interest rate cut by the Federal Reserve (Fed). The surprisingly strong US jobs data, with the economy adding 254K jobs in September, has provided evidence of a resilient US labor market. Additionally, higher-than-expected growth in the Average Hourly Earnings has revived inflation fears, reducing hopes for aggressive policy easing by the Fed.
Market Expectations
Market pricing currently indicates a nearly 95% chance of a 25 basis points rate cut by the Fed at the end of a two-day policy meeting on November 7. Geopolitical risks from conflicts in the Middle East have also supported the USD Index (DXY) to register its best week since September 2022.
ECB Rate Cut Expectations
The Euro continues to be undermined by bets that the European Central Bank (ECB) will cut rates again in October due to easing inflationary pressures and economic slowdown. Comments from ECB Governing Council member Francois Villeroy de Galhau have reaffirmed these expectations, indicating that weak economic growth raises the risk of inflation undershooting the 2% target.
Analysis and Conclusion
The current market dynamics suggest a bearish trend for the EUR/USD pair, with the USD maintaining strength and the Euro facing headwinds from potential ECB rate cuts. Traders should tread cautiously and monitor key economic indicators and central bank decisions to navigate the volatile currency markets effectively.