The State of EUR/USD: A Comprehensive Analysis for Investors
EUR/USD has experienced a significant decline, reaching two-month lows near 1.0860 and breaking below the crucial 200-day Simple Moving Average (SMA) at 1.0872. This decline has been accompanied by a strengthening of the US Dollar, pushing the U.S. Dollar Index (DXY) to levels above 103.50, last seen in early August.
Factors Driving the Market
- The Federal Open Market Committee (FOMC) minutes from its September 18 meeting revealed a strong inclination towards a 50-basis-point cut to ease monetary policy, contributing to the Dollar’s rally.
- Despite this, the recent strength of the Greenback is also supported by the cautious tone from Federal Reserve (Fed) officials, with some policymakers suggesting a 25-basis-point cut next month.
- The European Central Bank (ECB) is expected to reduce its policy rates by 25 basis points at its upcoming meeting on October 17, given Eurozone inflation below target and stagnant GDP growth.
Market Outlook
As the Fed and ECB consider their next moves, the macroeconomic trends will play a crucial role in determining the outlook for EUR/USD. With the US economy expected to outperform the Eurozone, further strengthening of the USD is a possibility.
EUR/USD Technical Analysis
Short-Term Projection
If further drops occur, EUR/USD could reach its October low of 1.0862, followed by the round level of 1.0800 and the August low of 1.0777. On the upside, hurdles exist at the 100-day and 55-day SMAs at 1.0935 and 1.1040, respectively.
Key Levels to Watch
- Support levels: 1.0862, 1.0800, 1.0777
- Resistance levels: 1.0935, 1.1040, 1.1214, 1.1275
A sustained breakdown of the critical 200-day SMA of 1.0872 could shift the outlook to bearish. The current four-hour chart indicates a deteriorating downward trend, with support at 1.0862 and resistance at 1.0943 and 1.0996.
Overall, the relative strength index (RSI) hovers around 30, indicating a bearish sentiment in the short term.
Conclusion
Investors should closely monitor the upcoming interest rate decisions by the ECB and US Retail Sales data, as they will likely have a significant impact on the future movements of EUR/USD. With a potential for further USD strength, strategic positioning in the market is crucial for investors seeking to navigate these uncertain times.