EUR/USD Price Forecast: A bearish trend in the offing?

• EUR/USD tumbled to fresh lows near 1.0930 ahead of US CPI.
• The US Dollar advanced to multi-week highs back by higher yields.
• The next salient event in the FX world will be the US CPI on Thursday.

EUR/USD accelerated its losses on Wednesday and revisited the 1.0930 region, an area also coincident with the provisional 100-day SMA.

Meanwhile, the US Dollar (USD) gathered extra steam, helped by further gains in US yields across the curve, taking the US Dollar Index (DXY) to new multi-week peaks in levels just shy of the 103.00 hurdle.

In addition, the FOMC Minutes also supported the greenback. On this, the Minutes of the September 18 meeting said that a "substantial majority" of rate-setters advocated easing monetary policy with a 50 basis point reduction. However, there was widespread agreement that this step did not bind the Fed to a certain rate of future reduction. In addition, officials felt the rate cut would better match policy with recent inflation and labour market developments.

On the monetary policy side, market expectations continue to lean towards a 25 basis point rate cut by the Federal Reserve at its November 7 event, as the likelihood of a significant rate cut has diminished, especially after September’s stronger-than-expected US jobs report.

Federal Reserve Chair Jerome Powell recently reaffirmed a data-dependent approach to future rate decisions, suggesting that the pace of rate reductions could slow down.

Elsewhere within the Fed, Dallas Federal Reserve Bank President Lorie Logan expressed support for last month's significant interest rate cut but advocated for smaller reductions moving forward due to ongoing inflation risks and economic uncertainties. Similarly, Federal Reserve Vice Chair Philip Jefferson highlighted that the half-point rate cut was aimed at maintaining a strong labour market, despite the continued decline in inflation.

Across the Atlantic, the European Central Bank (ECB) adopted a more cautious tone at its recent meeting, due to both inflationary and economic concerns. ECB President Christine Lagarde recently emphasized that while inflation remains elevated in the Eurozone, restrictive monetary policies are starting to ease, potentially stimulating growth. The ECB aims to reach its 2% inflation target by 2025.

More on the ECB: board member Yannis Stournaras said he supports two interest rate cuts this year and expects further easing in 2025. Francois Villeroy also indicated that a rate cut is highly likely next week. However, Peter Kazimir expressed scepticism about the need for an imminent cut, citing the importance of upcoming data before the December meeting. Meanwhile, Gabriel Makhlouf highlighted upside risks to inflation from strong wage growth and persistent service inflation, despite expectations for inflation to meet the 2% target by late next year.

Recent data showed that Eurozone inflation, as measured by the Harmonized Index of Consumer Prices (HICP), fell below the ECB's target in September, reaching 1.8% year-on-year. This has only reinforced the belief that the ECB might implement further rate cuts in the coming months.

With both the Fed and the ECB likely to enact more rate cuts, the outlook for EUR/USD remains closely tied to macroeconomic trends. In this context, the US economy is expected to outperform its European counterpart, which could lend additional strength to the US Dollar.

Regarding market positioning, speculators reduced their net long positions in the Euro to the lowest levels since late August, while commercial traders scaled back their net short positions to a six-week low, accompanied by a slight decrease in open interest, according to the CFTC Positioning Report for the week ending October 1.

EUR/USD daily chart

EUR/USD short-term technical outlook

Further falls may cause the EUR/USD to challenge the October low of 1.0935 (October 9), which is ahead of the weekly low of 1.0881 (August 8).

On the upside, the 55-day SMA at 1.1034 serves as a temporary barrier ahead of the 2024 high of 1.1214 (September 25), followed by the 2023 peak of 1.1275 (July 18) and the 1.1300 round mark.

Meanwhile, the pair's upward trend is projected to continue as long as it remains above the crucial 200-day SMA at 1.0873.

The four-hour chart now displays an intensification of the downward trend. Against that, initial contention aligns at 1.0935, followed by 1.0913, and finally 1.0881. On the upside, initial resistance comes at 1.0996, ahead of the 55-SMA of 1.1049 and then 1.1082. The relative strength index (RSI) decreased to about 26.