The Current State of EUR/USD

  • EUR/USD dipped below 1.0900, hitting new two-month lows.
  • US Dollar gains momentum amidst persistent risk aversion.
  • Chinese data and stimulus concerns impact the pair.

EUR/USD faced additional selling pressure, breaking below the key 1.0900 level and reaching new lows near the critical 200-day Simple Moving Average (SMA) due to a negative start to the week.

Simultaneously, the US Dollar continued its upward trend, pushing the US Dollar Index (DXY) to multi-week highs above 103.00 on the back of sustained risk aversion and geopolitical tensions in the Middle East.

Factors Affecting the Foreign Exchange Market

  • Minutes from the FOMC meeting revealed support for a 50-basis-point rate cut.
  • Conflicting views from Federal Reserve officials on future rate cuts and economic outlook.
  • ECB adopts a cautious stance with inflation targets set for 2025.
  • Eurozone inflation falls below target, fueling speculation of rate cuts.

The FOMC minutes showed a majority backing for monetary easing but did not commit to a specific timeline for future rate cuts. Differing opinions among Fed officials on rate reduction and economic conditions have added to market uncertainty.

On the other hand, the ECB is taking a cautious approach, focusing on inflation targets for 2025. Recent data indicating below-target inflation and stagnant GDP growth in the Eurozone have raised expectations for future rate cuts.

Market Outlook and Technical Analysis

  • US economy expected to outperform Eurozone, strengthening the US Dollar.
  • Speculators reduce net long positions on the EUR, increasing net short positions.
  • EUR/USD may test October low of 1.0897, with key resistance at 1.1038 and 1.1214.

As the Fed and ECB weigh further rate cuts, the EUR/USD outlook remains tied to macroeconomic developments. The US economy’s outperformance is expected to support the US Dollar, while technical analysis suggests potential downside for EUR/USD.

EUR/USD Daily Chart

EUR/USD Short-Term Technical Outlook

Further falls could see EUR/USD testing support levels at 1.0897 and 1.0881, while resistance is seen at 1.1038 and 1.1214. Maintaining above the 200-day SMA at 1.0873 is crucial for the pair’s upward trend to continue.

Overall, market sentiment, central bank policies, and technical indicators all play a role in shaping the current state of EUR/USD and provide insight into future movements in the foreign exchange market.

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