EUR/USD Price Forecast: Some consolidation should not be ruled out

• EUR/USD partially trimmed Friday’s losses and returned above 1.0800.
• The US Dollar navigated a vacillating range amidst higher US yields.
• Markets’ attention now shifts to upcoming key data releases in the US and EMU.

EUR/USD managed a decent recovery on Monday, paring some of its multi-week losses after reaching new lows around 1.0760 in the previous week.

Despite the rebound, the pair remains below the critical 200-day Simple Moving Average (SMA) at 1.0869, a situation that is expected to leave the door open to further weakness in the short-term horizon.

The US Dollar's rally showed some signs of fatigue, with the Dollar Index (DXY) revisiting recent tops near 104.60 before receding towards the 104.30 zone as the NA session drew to a close.

The pair’s acceptable advance also came in tandem with extra gains in US yields across different time frames in contrast to a marked retracement of German 10-year bund yields. The Greenback’s monthly rally has been bolstered by rising US yields, which in turn appeared propped up by resilient economic data and cautious rhetoric from Federal Reserve (Fed) officials, while uncertainty surrounding the November 5 US election has also added support for the dollar.

Looking ahead, there is anticipation of a 25-basis-point rate cut by the Fed next month, though some officials, including FOMC Governor Michelle Bowman and Atlanta Fed President Raphael Bostic, have expressed reservations. Bostic even hinted at the possibility of the Fed delaying a rate cut in November.

Currently, the CME Group’s FedWatch Tool almost fully prices in a quarter-point cut at the November 7 gathering.

Across the Atlantic, the European Central Bank (ECB) met expectations with a 25-basis-point rate cut on October 17, lowering the Deposit Facility Rate to 3.25%. However, ECB officials have signaled a cautious approach to further rate adjustments, focusing on incoming data. ECB President Christine Lagarde emphasized the need for prudence in future decisions, given the evolving economic landscape.

However, ECB policymakers present differing views on future cuts. Robert Holzmann supports a potential quarter-point reduction in December, while Bostjan Vasle advocates for “measured” cuts, warning against premature easing. Joachim Nagel cautioned against ending the inflation battle too early, and Martins Kazaks noted that while eurozone inflation may ease faster than anticipated, gradual rate cuts are still necessary given the high uncertainty.

Eurozone inflation, as measured by the Harmonised Index of Consumer Prices (HICP), fell to 1.7% year-on-year in September, below the ECB's target, amid stagnant GDP growth. This scenario may strengthen the case for further ECB easing in the months ahead. Meanwhile, German and eurozone business activity, as indicated by preliminary Manufacturing and Services PMIs for October, showed continued weakness, especially in the manufacturing sector.

As both the Fed and ECB deliberate on their next moves, the EUR/USD’s trajectory will likely hinge on broader economic trends. With the US economy currently outpacing the eurozone, the Greenback may retain support in the near to medium term. Extra support for the Greenback is expected to also emerge in a Trump win scenario.

On another page, the latest CFTC Positioning Report for the week ending October 22 showed speculators moved to a net short position on the Euro for the first time since late April, while overall open interest continued to decrease. During that period, EUR/USD remained bearish, breaking below the 1.0900 support level and extending a downward trend that began at the start of the month.

EUR/USD daily chart

EUR/USD short-term technical outlook

Further losses may push EUR/USD to its October low of 1.0760 (October 23), paving the way for a probable test of the round level at 1.0700 before the June low of 1.0666 (June 26).

On the upside, the 200-day SMA at 1.0869 leads, followed by the preliminary 100-day and 55-day SMAs at 1.0933 and 1.1027, respectively. Next up is the 2024 top of 1.1214 (September 25), ahead of the 2023 peak of 1.1275 (July 18).

Meanwhile, if the pair continues to move below the key 200-day SMA, the picture remains negative.

The four-hour chart indicates the emergence of some consolidative mood. Nonetheless, the initial support level is at 1.0760, followed by 1.0666. On the upside, the immediate hurdle is at 1.0839, prior to 1.0954 and 1.0996. The relative strength index (RSI) looked stable below 50.