Euro Technical Analysis: EUR/USD Weakness Ahead of Expected ECB Rate Cut

Euro, EUR/USD, ECB Talking Points:

• This Thursday brings the European Bank’s Rate Decision and the wide expectation is for the bank to cut rates again.
• EUR/USD was strong through most of Q3 but started to stall around the 1.1200 handle. A different tone has shown since the Q4 open and last week saw the pair continue the plunge down to 1.0900. This keeps the longer-term range in order on the pair but the question now is shorter-term timing as RSI has begun to diverge on the four-hour chart.

EUR/USD sellers made a loud re-entrance to the pair at the Q4 open and to date, they haven’t really taken much of a step back. To be sure the fundamental situation can be argued to be perhaps a bit different given the spate of strong US data. But realistically markets are still expecting the Fed to lean into rate cuts heavily through the end of 2025 and any expectation for loosening in the US has been pushed back rather than abandoned altogether. In Europe, the European Central Bank is widely expected to cut at the rate decision on Thursday of this week and given the bank’s prior move to abandon forward guidance, this can leave markets to guess what or when the next move might take place. So, the focus will be on any inference from Christine Lagarde towards forward-looking policy and this is likely the push point around the ECB’s meeting on Thursday as the rate cut, at this point, feels well priced-in.

In EUR/USD, the pair had a strong outing in Q3, particularly the first two months of the quarter as EUR/USD rallied from a July low just above the 1.0700 handle to an August high at the 1.1200 level. But notably, that’s where the bullish trend halted as that price held well through the final month of Q3 trade until, eventually, sellers were able to push at the Q4 open.

EUR/USD Daily Price Chart

EUR/USD Shorter-Term

The sell-off in the pair came on quickly starting from two weeks ago. That weekly open saw another attempt from bulls to break through 1.1200 but, notably, that held a lower-high inside of the Fibonacci level that came into play in late trade during the prior week. And then from Tuesday, the first day of Q4, and through the end of that week, a strong sell-off ensued as the US Dollar showed its strongest week in more than two years. Friday of that week saw engagement with a key support zone, spanning from 1.0943-1.0960. That zone held the lows through the weekly close and Monday and Tuesday of last week, leading to a mild bounce before sellers jumped back in below the 1.1000 psychological level.

I talked about this in the webinar last Tuesday, but this has a similar but mirror image dynamic as what had shown a month earlier. In that episode, bulls jumped in two pips above the 1.1000 level after the initial sell-off from 1.1200. They held the low above the big figure and the day after saw the ECB’s rate cut announcement, which led to a fast move-higher and a re-test of the 1.1200 handle.

In last week’s scenario, sellers jumped in 2.7 pips below the big figure to defend the 1.1000 level, and that led to an extension in the sell-off. At this point, sellers still have control of the matter but establishing short exposure at this point could have its own challenges, which I’ll dig into after the next chart.

EUR/USD Two-Hour Price Chart

EUR/USD Strategy

At this point buyers have so far defended the 1.0900 level, with last Thursday’s low showing just two pipettes (two-tenths of one pips) above that price. This isn’t to say that the price will hold as a local bottom but there’s a few different factors that suggest caution if chasing.

There’s been a build of a falling wedge formation which is often approached with aim of bullish reversal. And RSI divergence has begun to show on the four-hour chart. Both are contrarian factors but at no point do they ensure that a low is in place, so the matter should be handled delicately at this point.

From a shorter-term look, there has been an element of support showing off that prior resistance trendline making up the wedge; but last week’s break found resistance at a familiar zone of 1.0943-1.0960. Pullback scenarios could make the prospect of bearish trend continuation more attractive and, at this point, for those looking to establish fresh bearish exposure without a pullback, they’d likely need to be open to chasing breakdowns in what’s been an already-established trend.

For those looking for pullbacks, there’s a couple of scenarios to entertain: A poke of a fresh low, below the 1.0900 handle, that doesn’t see run from sellers. If this leaves an exposed underside wick on the four-hour or daily charts, that could highlight pullback potential at which point the 1.0943-1.0960 zone and then the 1.1000 price could come back into play for lower-highs on the daily chart. Alternatively, if we do get continued downside break, there’s a Fibonacci level at 1.0862 and looking to that for a support bounce, at which point 1.0900 could become lower-high potential, could allow for bearish trend continuation strategies.

EUR/USD Four-Hour Price Chart

--- written by James Stanley, Senior Strategist

Euro, EUR/USD, ECB Talking Points:

• This Thursday brings the European Bank’s Rate Decision and the wide expectation is for the bank to cut rates again.
• EUR/USD was strong through most of Q3 but started to stall around the 1.1200 handle. A different tone has shown since the Q4 open and last week saw the pair continue the plunge down to 1.0900. This keeps the longer-term range in order on the pair but the question now is shorter-term timing as RSI has begun to diverge on the four-hour chart.

EUR/USD sellers made a loud re-entrance to the pair at the Q4 open and to date, they haven’t really taken much of a step back. To be sure the fundamental situation can be argued to be perhaps a bit different given the spate of strong US data. But realistically markets are still expecting the Fed to lean into rate cuts heavily through the end of 2025 and any expectation for loosening in the US has been pushed back rather than abandoned altogether. In Europe, the European Central Bank is widely expected to cut at the rate decision on Thursday of this week and given the bank’s prior move to abandon forward guidance, this can leave markets to guess what or when the next move might take place. So, the focus will be on any inference from Christine Lagarde towards forward-looking policy and this is likely the push point around the ECB’s meeting on Thursday as the rate cut, at this point, feels well priced-in.

In EUR/USD, the pair had a strong outing in Q3, particularly the first two months of the quarter as EUR/USD rallied from a July low just above the 1.0700 handle to an August high at the 1.1200 level. But notably, that’s where the bullish trend halted as that price held well through the final month of Q3 trade until, eventually, sellers were able to push at the Q4 open.

 

EUR/USD Daily Price Chart

Chart prepared by James Stanley, EUR/USD on Tradingview

 

EUR/USD Shorter-Term

 

The sell-off in the pair came on quickly starting from two weeks ago. That weekly open saw another attempt from bulls to break through 1.1200 but, notably, that held a lower-high inside of the Fibonacci level that came into play in late trade during the prior week. And then from Tuesday, the first day of Q4, and through the end of that week, a strong sell-off ensued as the US Dollar showed its strongest week in more than two years. Friday of that week saw engagement with a key support zone, spanning from 1.0943-1.0960. That zone held the lows through the weekly close and Monday and Tuesday of last week, leading to a mild bounce before sellers jumped back in below the 1.1000 psychological level.

I talked about this in the webinar last Tuesday, but this has a similar but mirror image dynamic as what had shown a month earlier. In that episode, bulls jumped in two pips above the 1.1000 level after the initial sell-off from 1.1200. They held the low above the big figure and the day after saw the ECB’s rate cut announcement, which led to a fast move-higher and a re-test of the 1.1200 handle.

In last week’s scenario, sellers jumped in 2.7 pips below the big figure to defend the 1.1000 level, and that led to an extension in the sell-off. At this point, sellers still have control of the matter but establishing short exposure at this point could have its own challenges, which I’ll dig into after the next chart.

 

EUR/USD Two-Hour Price Chart

Chart prepared by James Stanley, EUR/USD on Tradingview

 

EUR/USD Strategy

 

At this point buyers have so far defended the 1.0900 level, with last Thursday’s low showing just two pipettes (two-tenths of one pips) above that price. This isn’t to say that the price will hold as a local bottom but there’s a few different factors that suggest caution if chasing.

There’s been a build of a falling wedge formation which is often approached with aim of bullish reversal. And RSI divergence has begun to show on the four-hour chart. Both are contrarian factors but at no point do they ensure that a low is in place, so the matter should be handled delicately at this point.

From a shorter-term look, there has been an element of support showing off that prior resistance trendline making up the wedge; but last week’s break found resistance at a familiar zone of 1.0943-1.0960. Pullback scenarios could make the prospect of bearish trend continuation more attractive and, at this point, for those looking to establish fresh bearish exposure without a pullback, they’d likely need to be open to chasing breakdowns in what’s been an already-established trend.

For those looking for pullbacks, there’s a couple of scenarios to entertain: A poke of a fresh low, below the 1.0900 handle, that doesn’t see run from sellers. If this leaves an exposed underside wick on the four-hour or daily charts, that could highlight pullback potential at which point the 1.0943-1.0960 zone and then the 1.1000 price could come back into play for lower-highs on the daily chart. Alternatively, if we do get continued downside break, there’s a Fibonacci level at 1.0862 and looking to that for a support bounce, at which point 1.0900 could become lower-high potential, could allow for bearish trend continuation strategies.

 

EUR/USD Four-Hour Price Chart

Chart prepared by James Stanley, EUR/USD on Tradingview

 

--- written by James Stanley, Senior Strategist