The future of the EUR/USD

17 Ekim 2024

The future of the EUR/USD: Will it test the 1.0800 level as the European Central Bank meeting approaches?

Today’s market analysis on behalf of Rania Gule Senior Market Analyst at XS.com

The EUR/USD pair is heading downwards, trading at 1.0853 this Thursday, amid rising expectations that the European Central Bank (ECB) will cut interest rates during its upcoming meeting today. In my opinion, this puts additional pressure on the euro. The bank is expected to reduce the interest rate by 25 basis points due to the slowing economic growth in the eurozone and increasing economic challenges. This anticipated cut is likely to enhance the euro’s weakness, as the accommodative monetary policies in the region continue to exert pressure on the euro against the stronger U.S. dollar.

On the other hand, the United States is set to release its retail sales data for September, which is expected to show a 0.3% improvement, potentially bolstering the strength of the U.S. dollar. With the U.S. economy continuing to outperform the European slowdown, I believe that the gap between the monetary policies of both the ECB and the Federal Reserve will contribute to pushing the EUR/USD pair to new bearish levels. In this context, the euro may continue to weaken until signs of stability in the European economy or a shift in U.S. monetary policy direction emerge.

From my perspective, the EUR/USD pair is experiencing a state of weakness, having approached the 1.0850 level today. In my view, this decline is not merely transient market fluctuations but reflects an ongoing downward trend driven by several fundamental factors. It is clear that the increasing pressure from the rising value of the U.S. dollar plays a key role in this direction, making it essential to closely monitor upcoming economic and political developments.

Attention is currently focused on the ECB’s monetary policy meeting scheduled for today. The bank is expected to cut interest rates for the third time this year, a move aligned with the desire to boost economic growth in the eurozone. However, I believe this cut may increase pressure on the euro against the strong dollar. With the dollar continuing to strengthen due to the Federal Reserve’s policies, it seems that the euro will struggle to withstand these pressures.

Especially after the Federal Open Market Committee (FOMC) took the unusual step of cutting the interest rate by half a percentage point in September. This indicates clear concern regarding inflation and economic growth. Comments from Governor Christopher Waller show that the Federal Reserve anticipates future interest rate cuts but at a slower pace than expected, which I believe reflects fears of the U.S. economy continuing to perform strongly. This will also provide additional support for the dollar and increase the challenges facing the euro. Consequently, it enhances the downward trend of the EUR/USD pair and increases the likelihood of further declines toward levels close to 1.0800.

Additionally, weaker-than-expected inflation in the eurozone is another factor putting pressure on the euro. If the ECB fails to provide clear signals supporting the euro’s stability, this could lead to further declines. Given the recent statements by ECB President Christine Lagarde, it seems the bank is trying to maintain its stance amid challenges, but concerns about economic conditions may necessitate quicker action.

Here, I can say that the overall trend for the EUR/USD pair is moving towards further declines, especially with a focus on the ECB’s monetary policy decisions and economic developments in the United States. In my opinion, investors should prepare for more volatility in the upcoming period, with the possibility that the pair may find support at the 1.0850 level before heading toward lower levels at 1.0800 if economic and political conditions continue to pressure the euro. This makes it essential to follow news and economic forecasts closely to accurately determine the near-term direction.

 

Zaid Barem / YMM