EUR/USD Price Forecast: Extra losses now hinge on upcoming data, ECB

EUR/USD continued its sharp multi-week decline on Tuesday, this time reaching new multi-week lows at the 1.0800 level, maintaining its trade below the critical 200-day Simple Moving Average (SMA) at 1.0870.

Meanwhile, the US Dollar (USD) remained strong, lifting the US Dollar Index (DXY) past the 104.00 mark for the first time since early August. The Greenback’s rally has been supported by fresh highs in US yields across the board despite Tuesday’s small decline, boosted by strong US fundamentals and a cautious stance from Federal Reserve (Fed) officials. Additionally, the resurgence of the "Trump trade" added to the US Dollar’s upward momentum.

While many Fed policymakers lean towards a 25-basis-point rate cut next month, officials like FOMC Governor Michelle Bowman and Atlanta Fed President Raphael Bostic have shown some caution, with Bostic suggesting the Fed may skip a cut in November. The CME Group’s FedWatch Tool indicates a 90% likelihood of a quarter-point cut next month.

On the other side of the Atlantic, the European Central Bank (ECB) met expectations by reducing policy rates by 25 basis points at its gathering on October 17, bringing the Deposit Facility Rate to 3.25%. However, ECB officials offered no clear guidance on future moves, maintaining a data-dependent approach.

Earlier on Tuesday, ECB officials emphasised the progress in reducing euro zone inflation toward the 2% target. ECB President Christine Lagarde expressed her confidence, stating that inflation would sustainably reach the target by 2025, possibly even sooner. ECB policymaker Robert Holzmann shared a similar view, indicating that inflation could fall faster than previously anticipated, although he did not provide a specific timeframe. In contrast, ECB policymaker Mario Centeno cautioned that while inflation is approaching the target, there is a growing risk of undershooting it, which could potentially hinder economic growth.

Eurozone inflation, as measured by the Harmonised Index of Consumer Prices (HICP), fell below the ECB's target to 1.7% in the year leading up to September. Alongside stagnant GDP growth, this is likely to strengthen the case for further ECB rate cuts in the coming months.

As both the Fed and ECB weigh their next policy decisions, EUR/USD’s future will be shaped by broader macroeconomic trends. Currently, the US economy is outperforming the Eurozone, which may continue to provide short- to medium-term support for the Greenback.

According to CFTC data, speculative net long positions in the Euro have declined for three consecutive weeks amid a multi-week pullback in the long/short ratio. At the same time, hedge funds’ net short positions have decreased for six straight weeks, against a backdrop of a slight drop in open interest.

EUR/USD daily chart

EUR/USD short-term technical outlook

Further weakness might bring EUR/USD to its October low of 1.0800 (October 22), ahead of the August low of 1.0777 (August 1).

On the upside, the 100-day and 55-day SMAs of 1.0934 and 1.1035, respectively, provide brief resistance. The 2024 high of 1.1214 (September 25) is expected to be followed by the 2023 top of 1.1275 (July 18).

Meanwhile, if the pair maintains its trade below the key 200-day SMA of 1.0870, the situation might worsen.

The four-hour chart shows the pair continuing its downward trend. Nonetheless, early support is at 1.0800, followed by 1.0777. On the upside, the 55-SMA at 1.0880 is ahead, followed by 1.0954 and 1.0996. The relative strength index (RSI) dropped to nearly 29.