EUR/USD falls further as ECB dovish bets swell
|- EUR/USD stays on backfoot as the ECB is expected to cut interest rates again in December.
- ECB’s Lagarde is confident about inflation returning to the bank's target next year.
- Fed policymakers see smaller interest rate cuts as appropriate.
EUR/USD posts a fresh 11-week low at 1.0800 in Tuesday’s North American session. The major currency pair weakens on the downbeat Euro (EUR) as traders have priced in the European Central Bank (ECB) to cut interest rates again in the December meeting. ECB dovish bets have swelled as growing risks to the Eurozone’s economic growth are expected to keep inflationary pressures within striking distance of the central bank’s target of 2%. This would mean the fourth interest rate cut by the ECB this year.
Data released on Monday showed that the German Producer Price Index (PPI) deflated by 1.4% year-over-year (YoY) in September, faster than 0.8% in August, and pointed to the inability of producers to raise prices of goods and services at factory gates due to weak household spending.
Meanwhile, the International Monetary Fund (IMF) has downgraded Germany's Gross Domestic Product (GDP) forecasts for 2024 and 2025. The agency sees the German economy stagnating this year and a 0.8% growth for the next year.
On the sidelines of IMF meeting, ECB President Christine Lagarde said in an interview with Bloomberg that she is confident about inflation returning to its target in 2025. Lagarde added that inflation numbers in the Eurozone are "relatively reassuring" but added that they can't jump to a conclusion that it's a done deal.
Meanwhile, the commentary from Lithuanian central bank governor and ECB Governing Council member Gediminas Šimkus appeared to be more dovish. Šimkus said, "If the disinflation processes get entrenched, it's possible that rates will be lower than the natural level." The ‘natural level’ of interest rates is between 2% and 3%.
Daily digest market movers: EUR/USD weakens as US Dollar outperforms
- EUR/USD slides further to near 1.0800 due to a firm US Dollar (USD). The US Dollar Index (DXY), which gauges Greenback’s value against six major currencies, climbs above 104.00. The Greenback gains on United States (US) presidential election jitters and growing expectations that the Federal Reserve (Fed) will follow a moderate policy-easing cycle.
- Latest polls have shown a neck-to-neck competition between former US President Donald Trump and Vice President Kamala Harrish ahead of elections, which are just two weeks away. Trump's victory is expected to result in higher import tariffs and lower taxes, which could prompt the Fed to raise interest rates further.
- Meanwhile, the Fed is expected to cut interest rates by 25 basis points (bps) in November and December, according to the CME FedWatch tool. The reasoning behind firm speculation for a slower rate-cut cycle is investors’ growing confidence in US economic resilience after upbeat Nonfarm Payrolls (NFP), ISM Services PMI, and the Retail Sales data for September. Also, Fed officials see a gradual rate-cut path as appropriate.
- This week, investors will keep an eye on the preliminary S&P Global Purchasing Managers Index (PMI) data for October, which will be published on Thursday.
US Dollar PRICE Today
The table below shows the percentage change of US Dollar (USD) against listed major currencies today. US Dollar was the strongest against the British Pound.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | 0.09% | 0.15% | 0.06% | -0.01% | -0.34% | -0.26% | -0.07% | |
| EUR | -0.09% | 0.07% | -0.02% | -0.11% | -0.45% | -0.34% | -0.16% | |
| GBP | -0.15% | -0.07% | -0.08% | -0.17% | -0.51% | -0.41% | -0.23% | |
| JPY | -0.06% | 0.02% | 0.08% | -0.08% | -0.42% | -0.35% | -0.14% | |
| CAD | 0.01% | 0.11% | 0.17% | 0.08% | -0.33% | -0.25% | -0.06% | |
| AUD | 0.34% | 0.45% | 0.51% | 0.42% | 0.33% | 0.09% | 0.27% | |
| NZD | 0.26% | 0.34% | 0.41% | 0.35% | 0.25% | -0.09% | 0.19% | |
| CHF | 0.07% | 0.16% | 0.23% | 0.14% | 0.06% | -0.27% | -0.19% |
The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the US Dollar from the left column and move along the horizontal line to the Japanese Yen, the percentage change displayed in the box will represent USD (base)/JPY (quote).
Technical Analysis: EUR/USD sees more downside below 1.0800
EUR/USD struggles to hold the immediate support of 1.0800 in North American trading hours. The outlook of the major currency pair remains uncertain as it trades below the 200-day Exponential Moving Average (EMA), which trades around 1.0900.
The downside move in the shared currency pair started after a breakdown of a Double Top formation on a daily timeframe near the September 11 low at around 1.1000, which resulted in a bearish reversal.
The 14-day Relative Strength Index (RSI) dives below 30.00, indicating a strong bearish momentum. However, a recovery move remains on the cards as conditions turn oversold.
On the downside, the major could find support near the upward-sloping trendline at 1.0750, which is plotted from the October 3 low around 1.0450. Meanwhile, the 200-day EMA and the psychological figure of 1.1000 will be the key resistances for the pair.
ECB FAQs
The European Central Bank (ECB) in Frankfurt, Germany, is the reserve bank for the Eurozone. The ECB sets interest rates and manages monetary policy for the region. The ECB primary mandate is to maintain price stability, which means keeping inflation at around 2%. Its primary tool for achieving this is by raising or lowering interest rates. Relatively high interest rates will usually result in a stronger Euro and vice versa. The ECB Governing Council makes monetary policy decisions at meetings held eight times a year. Decisions are made by heads of the Eurozone national banks and six permanent members, including the President of the ECB, Christine Lagarde.
In extreme situations, the European Central Bank can enact a policy tool called Quantitative Easing. QE is the process by which the ECB prints Euros and uses them to buy assets – usually government or corporate bonds – from banks and other financial institutions. QE usually results in a weaker Euro. QE is a last resort when simply lowering interest rates is unlikely to achieve the objective of price stability. The ECB used it during the Great Financial Crisis in 2009-11, in 2015 when inflation remained stubbornly low, as well as during the covid pandemic.
Quantitative tightening (QT) is the reverse of QE. It is undertaken after QE when an economic recovery is underway and inflation starts rising. Whilst in QE the European Central Bank (ECB) purchases government and corporate bonds from financial institutions to provide them with liquidity, in QT the ECB stops buying more bonds, and stops reinvesting the principal maturing on the bonds it already holds. It is usually positive (or bullish) for the Euro.
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