EUR/USD Price Forecast: Losses could accelerate below 1.0500

• EUR/USD retreated further and challenged the key 1.0500 support.
• The US Dollar climbed to multi-day highs prior to US CPI data.
• The ECB is largely expected to cut its policy rate on Thursday.

Another positive day in the Greenback saw EUR/USD slip back to the boundaries of the key contention region around 1.0500 on turnaround Tuesday, in a context of extra gains in the Greenback and higher US and German yields.

Meanwhile, the US Dollar (USD) extended its bull run for the third straight day, surpassing the 106.60 level when measured by the US Dollar Index (DXY). Investor caution prevailed as markets looked ahead to this week’s US CPI report and remained attentive to renewed geopolitical tensions in the Middle East. 

Central banks in the spotlight 

Monetary policy continues to steer market sentiment. On November 7, the Federal Reserve (Fed) trimmed its benchmark interest rate by 25 basis points to 4.50%-4.75%, aiming to keep inflation in check. However, signs of strain are beginning to show in the US labour market, despite unemployment staying near historic lows. 

Fed Chair Jerome Powell recently struck a measured tone, signalling that current rate cuts might suffice for now. Echoing this sentiment, FOMC Governor Michelle Bowman advocated patience regarding future policy adjustments. Powell also underscored the importance of the Fed’s independence and expressed confidence in the economy's resilience, which allows for a careful approach to rate decisions. 

Across the Atlantic, the European Central Bank (ECB) is widely anticipated to trim its interest rates by another quarter percentage point at its meeting later in the week. Inflation remains a lingering concern, with November data revealing renewed price pressures in Germany and the Eurozone, accompanied by rising wages. In her latest remarks, ECB President Christine Lagarde acknowledged the downside risks to growth but maintained her neutral stance, offering little clarity on future moves. 

Trade policy adds a twist 

The potential return of trade tariffs, as proposed by President-elect Donald Trump, could add complexity to the economic landscape. Such measures might push US inflation higher, forcing the Fed to adopt a more aggressive policy stance. This could strengthen the USD further, placing additional pressure on EUR/USD in the coming months.

EUR/USD daily chart

Technical Analysis: EUR/USD 

Technically, the EUR/USD continues under negative pressure. Key support levels include 1.0331 (2024 low), 1.0290, and 1.0222, which were last seen in November 2022. On the upside, immediate resistance is at 1.0629, followed by the 200-day Simple Moving Average (SMA) at 1.0840 and the November top at 1.0936.

Looking at the bigger picture, the negative trend will continue as long as the pair trades below the 200-day SMA.

On a four-hour chart, resistance at 1.0629, 1.0641, and 1.0824 might restrict advances, while support levels include 1.0460, 1.0424, and the important 1.0331 level. Momentum indicators such as the RSI (around 40) favours extra downward pressure, while the ADX near 22 indicates a little increase in trend strength.

Bottom Line 

EUR/USD remains on shaky ground, weighed down by USD strength, political uncertainties, and diverging monetary policies between the Fed and ECB. While the pair has attempted some consolidation in the last few days, risks to the downside linger, leaving it exposed to further declines as market dynamics unfold.