The EUR/USD currency pair continued its downward trend on Tuesday, testing crucial support near the 1.1600 level. This decline marks the third consecutive day of losses for the Euro, which is experiencing renewed selling pressure amid a broader weakness in risk-sensitive assets. As the US Dollar strengthens, it reached multi-day highs, further contributing to the Euro’s challenges.
The pair’s decline coincides with a decrease in US Treasury yields and German 10-year bund yields. While the Euro struggles, the US Dollar Index has recorded gains for three straight days, edging closer to the 99.00 mark. A more stable sentiment surrounding US–China trade tensions is bolstering the Greenback as investors await preliminary Purchasing Managers’ Index (PMI) data and vital US inflation figures due on October 29, 2023.
Trade Tensions and Economic Indicators
Investor focus remains sharp on US–China relations, with speculation about a potential meeting between President Donald Trump and President Xi Jinping later this month in South Korea. Despite ongoing tensions, including Beijing’s recent decision to limit rare earth exports, which prompted a strong response from Washington, there are indications of a possible thaw in relations. Officials from both nations have stated that communication lines remain open, hinting at a willingness to continue dialogue.
In the United States, the Federal Reserve is anticipated to implement another 25-basis-point rate cut during its upcoming meeting. Recent updates to the “dots plot” suggest approximately 50 basis points of additional easing by the end of the year, with smaller adjustments projected through 2026 and 2027. Fed Chair Jerome Powell highlighted the cooling labor market, indicating that decisions will be made on a “meeting by meeting” basis to balance employment and inflation data.
Across the Atlantic, the European Central Bank (ECB) has maintained a cautious stance, reiterating its data-dependent approach during its latest meeting. ECB President Christine Lagarde expressed optimism about inflation gradually moving towards target levels, projecting core inflation at 2.4% in 2025. The ECB’s latest accounts suggest that policymakers see little need for further easing at this time, despite uncertainties related to US trade policy.
Technical Analysis and Market Outlook
From a technical perspective, the EUR/USD pair’s negative performance continues, with the potential for a visit to the October low at 1.1542 and the August floor at 1.1391. A deeper decline could expose retracement to the weekly trough at 1.1210. Conversely, bullish traders aim for an immediate target at the weekly high of 1.1728, with the next resistance level at the monthly peak of 1.1778. A breakout above this could bring the 2025 ceiling of 1.1918 back into focus, with the psychological level of 1.2000 also on the radar.
Currently, the outlook for the pair remains contingent on staying above the 200-day simple moving average. Momentum indicators are showing some weakness, with the Relative Strength Index dropping to around 44, suggesting that further losses may still be possible. The Average Directional Index, remaining below 16, indicates a trend lacking momentum.
As the EUR/USD seeks direction, any dovish shifts from the Fed, reduced demand for US assets, a steadier approach from the ECB, or significant breakthroughs in trade relations could provide the Euro with the impetus it needs to regain strength.