EUR/USD Price Forecast: Downside Pressure Intensifies

EUR/USD Price Forecast: Downside Pressure Intensifies

The EUR/USD pair continues its slide, trading around 1.0965 in the early European session on Monday. This marks the seventh consecutive day of declines, as the US Dollar (USD) strengthens and exerts pressure on the pair. The recent release of robust US jobs data on Friday has further dampened expectations for a 50 basis points (bps) Federal Reserve (Fed) rate cut in November, adding to the downward pressure on EUR/USD.

Technical Analysis: Signs of Weakness

On the technical front, EUR/USD is showing clear signs of weakness. The Relative Strength Index (RSI), a key momentum indicator, remains below the midline, positioned at around 37.55. This suggests that the selling pressure is intensifying, and the path of least resistance is pointing downward. Additionally, the pair is hovering near the crucial 100-day Exponential Moving Average (EMA), a widely watched level that could determine the pair’s next direction.

Key Support Levels

The 100-day EMA at 1.0970 is a critical technical level. If EUR/USD closes decisively below this level, it could signal further downside momentum. The next key support level would be at 1.0881, which represents the low from August 8. If this level is breached, the pair could head toward the 1.0805-1.0800 zone, a strong support area marked by the low from July 9.

Bearish RSI Indicator

The RSI’s reading below 40 reinforces the bearish outlook, indicating that the downward trend is likely to continue. The pair’s failure to reclaim higher levels in recent sessions also suggests that any bullish attempts have been met with significant resistance, making it difficult for the pair to recover in the short term.

US Dollar Strength: A Major Driver

The recent strength of the US Dollar has been a significant factor behind EUR/USD’s decline. The USD has gained traction due to shifting expectations around future Fed policy. Stronger-than-expected US jobs data has led to a reassessment of the likelihood of a rate cut by the Fed, with traders now less certain of a 50 bps cut in November.

Fed Policy and Market Sentiment

The US Dollar is benefiting from the expectation that the Fed will maintain higher interest rates for a longer period. This has led to increased demand for the USD as a safe-haven currency, especially as economic conditions in the Eurozone remain challenging. While inflation in the Eurozone remains high, economic growth has been sluggish, putting the European Central Bank (ECB) in a difficult position compared to the more aggressive stance of the Fed.

Economic Outlook

In contrast, the US economy has shown greater resilience, which has further boosted the USD. With inflationary pressures under control and steady economic growth, the Fed has more room to maneuver, allowing it to maintain a higher interest rate environment. This divergence in economic outlooks between the US and the Eurozone continues to drive the USD’s strength and adds to the bearish outlook for EUR/USD.

Key Technical Levels to Watch

Downside Support Levels

If EUR/USD continues to weaken, traders should monitor the following key support levels:

• 1.0881: This is the initial support level and represents the low from August 8. A break below this level would signal further downside risk.
• 1.0805-1.0800: This zone is the next significant support area and corresponds to the low from July 9. A break below this psychological level could open the door to even lower targets, such as 1.0725.

Upside Resistance Levels

On the upside, the first major resistance level is at 1.1000, which is a key psychological level for the pair. If EUR/USD manages to break above this level, it could signal a reversal of the downtrend. However, further resistance levels include:

• 1.1144: This level marks the high from October 1 and serves as a key upside barrier.
• 1.1223: This represents the upper boundary of the Bollinger Band and could be a target for extended gains if the pair manages to sustain a rally.

Market Sentiment and Outlook

The broader market sentiment remains bearish for EUR/USD, with multiple factors pointing toward a continued downtrend. The strong USD, weaker Eurozone economic data, and bearish technical indicators all suggest that EUR/USD is likely to face further downside pressure in the near term.

Fed’s Impact on EUR/USD

The Federal Reserve’s next moves will be critical in determining the future direction of EUR/USD. Should the Fed signal a more dovish stance or if US economic data weakens, it could relieve some of the upward pressure on the USD, allowing for a potential recovery in EUR/USD. Conversely, stronger US economic data or hawkish comments from Fed officials would likely reinforce the current downtrend.

Eurozone Challenges

Meanwhile, the Eurozone continues to grapple with high inflation and sluggish growth, making it difficult for the ECB to provide meaningful support for the Euro. Without stronger economic data or a shift in ECB policy, the Euro is likely to remain under pressure, further weakening the EUR/USD pair.

Path of Least Resistance

In conclusion, the technical and fundamental outlook for EUR/USD suggests that the pair is likely to continue its downward trajectory. While a short-term bounce is possible, the overall sentiment remains bearish, with the path of least resistance leading to further losses. Traders should closely watch the key support levels at 1.0881 and 1.0800, as a break below these could trigger deeper declines. On the upside, the 1.1000 level remains the key resistance that bulls will need to break in order to reverse the current trend. Until then, EUR/USD is expected to remain under selling pressure, with risks tilted to the downside.