Market Analysis

EUR/USD rises as dovish bets by the ECB maintain the downtrend

Amos Simanungkalit · 08 Oct18.4K Views

The EUR/USD currency pair is approaching the significant psychological resistance level of 1.1000 during Tuesday's European session. The pair is experiencing a modest recovery as the US Dollar (USD) undergoes a slight correction, with investors turning their attention to the upcoming Consumer Price Index (CPI) data for September, scheduled for release on Thursday.

Analysts anticipate that the annual core CPI, which excludes the often volatile food and energy prices, will show a stable increase of 3.2% year-over-year (YoY). In contrast, the headline inflation rate is projected to slow to 2.3% YoY, down from 2.5% in August.

The forthcoming inflation data is not expected to significantly alter the Federal Reserve’s (Fed) interest rate outlook, as policymakers are more concentrated on stimulating economic growth and enhancing consumer spending. Comments made by Fed Governor Adriana Kugler during Tuesday’s European session indicated her belief that additional rate cuts could be warranted if price pressures continue to diminish as anticipated.

In the financial markets, participants foresee a potential interest rate cut by the Fed in November, likely by 25 basis points (bps), according to the CME FedWatch tool. Speculation regarding a more substantial cut of 50 bps has recently diminished following the robust US job report for September, which revealed stronger-than-expected labor demand and wage growth.

Technical Analysis: EUR/USD Holds Below 1.1000

The EUR/USD pair is gaining some momentum, approaching immediate support at 1.0950. However, it remains under considerable pressure after breaking down from a Double Top chart pattern on the daily timeframe. This pattern was confirmed when the currency pair fell below the September 11 low of 1.1000.

The 14-day Relative Strength Index (RSI) has slipped below the 40.00 mark, suggesting that sustained movement below this level could signal bearish momentum.

On the downside, the pair is expected to find support near the 200-day Exponential Moving Average (EMA) around 1.0900. On the upside, key resistance levels include the 20-day EMA at 1.1070 and the September high near 1.1200.