EUR/USD Price Forecast: Next stop comes at the 200-day SMA

• EUR/USD retreated further and briefly pierced 1.0900 on Thursday.
• The US Dollar gathered decent steam and rose to new two-month highs.
• US inflation measured by the CPI rose above expectations in September.

On Thursday, EUR/USD deepened its losses, revisiting the area just below 1.0900 the figure, trading at shouting distance from the critical 200-day SMA.

At the same time, the US Dollar (USD) continued to strengthen, supported by rising US yields in the belly and the long end of the curve. This pushed the US Dollar Index (DXY) to fresh multi-week highs past the 103.00 hurdle.

Adding fuel to the greenback’s rally were the recently published Minutes from the FOMC meeting on September 18. The minutes revealed that a "substantial majority" of policymakers supported easing monetary policy with a 50-basis point cut. However, it was emphasized that this did not commit the Federal Reserve to a specific pace for future rate reductions. Policymakers generally agreed that the rate cut better aligned policy with recent inflation and labour market trends.

Sustaining a smaller rate cut by the Fed, US inflation rose more than initially estimated in September, with the headline CPI up by 2.4% YoY and the core CPI rising by 3.3% from a year earlier. In the same line, weekly Initial Claims rose more than expected, showing further cooling of the labour market.

Adding to the upside momentum in the Greenback, Atlanta Federal Reserve Bank President Raphael Bostic expressed that he would be comfortable with the Fed skipping an interest rate cut at the upcoming meeting. He added that the recent "choppiness" in inflation and employment data could justify keeping rates unchanged in November.

According to CME Group’s FedWatch Tool, the probability of a 25 bps rate cut next month hovers around 85%.

Across the Atlantic, the European Central Bank (ECB) struck a more cautious tone in its latest meeting, citing both inflationary pressures and broader economic concerns. ECB President Christine Lagarde stressed that while inflation remains high in the Eurozone, the impact of restrictive policies is starting to ease, which could boost growth. The ECB is targeting 2% inflation by 2025.

Recently, ECB board member Yannis Stournaras has voiced support for two rate cuts this year and expects additional easing in 2025. François Villeroy also pointed to a likely rate cut next week, while Peter Kazimir urged caution, calling for more data before making decisions in December. Meanwhile, Gabriel Makhlouf flagged potential upside risks to inflation driven by strong wage growth and persistent service-sector inflation, despite expectations that inflation will fall to the 2% target by late next year.

Latest data showed Eurozone inflation, as measured by the Harmonized Index of Consumer Prices (HICP), fell to 1.8% year-on-year in September, below the ECB’s target. This has strengthened the view that further rate cuts may be on the horizon.

With both the Fed and ECB expected to lower rates further, the EUR/USD outlook remains closely tied to macroeconomic conditions. In this environment, the US economy is projected to outperform the Eurozone, which could continue to bolster the US Dollar.

EUR/USD daily chart

EUR/USD short-term technical outlook

Further declines may bring the EUR/USD to test the October low of 1.0899 (October 10), prior to the weekly low of 1.0881 (August 8).

On the upside, the 55-day SMA at 1.1035 acts as a temporary hurdle before the 2024 high of 1.1214 (September 25), followed by the 2023 top of 1.1275 (July 18) and the 1.1300 round mark.

Meanwhile, the pair's rising trend is expected to continue as long as it stays above the critical 200-day SMA of 1.0873.

The four-hour chart now shows a deepening of the negative trend. Against that, early disagreement is at 1.0899, ahead of 1.0881. On the upside, 1.0996 provides first resistance, followed by the 55-SMA of 1.1023 and then 1.1082. The relative strength index (RSI) dropped to about 32.