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Euro Forecast: EUR/USD Post-ECB Selloff Puts May Low in Focus

Article By: ,  Strategist
September 14, 2023 1:45 PM

Euro Outlook: EUR/USD

EUR/USD takes out the June low (1.0662) even as the European Central Bank (ECB) unexpectedly delivers a 25bp rate hike, and recent price action warns of a further decline in the exchange rate as it fails to defend the opening range for September.

Euro Forecast: EUR/USD Post-ECB Selloff Puts May Low in Focus

EUR/USD registers a fresh monthly low (1.0639) as ECB President Christine Lagarde states that Euro Area ‘interest rates have reached levels that, maintained for a sufficiently long duration, will make a substantial contribution to the timely return of inflation to our target,’ and the comments suggest the Governing Council is at or nearing the end of its hiking-cycle as the ‘risks to economic growth are tilted to the downside.’

As a result, EUR/USD may struggle to hold its ground ahead of the Federal Reserve interest rate decision on September 20 as Chairman Jerome Powell and Co. keep the door open to implement higher US interest rates, and failure to defend the May low (1.0635) may lead to a test of the March low (1.0516) as there seems to be change in trend.

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US Economic Calendar

FOREX.com Economic Calendar

Developments coming out of the Federal Open Market Committee (FOMC) may sway the near-term outlook for EUR/USD as the central bank is slated to update the Summary of Economic Projections (SEP), and it remains to be seen if the Fed will take additional steps to combat inflation as the headline reading for the US Consumer Price Index (CPI) climbs to 3.7% in August from 3.2% per annum the month prior.

Until then, EUR/USD may face headwinds as it snaps the opening range for September, and a further decline in the exchange rate may push the Relative Strength Index (RSI) into oversold territory for the first time in 2023 as there appears to be a change in trend.

With that said, EUR/USD price action is in focus ahead of the Fed rate decision as it registers a fresh monthly low (1.0639), and failure to defend the May low (1.0635) may lead to a test of the March low (1.0516) as the 50-Day SMA (1.0936) develops a negative slope.

EUR/USD Chart – Daily

Chart Prepared by David Song, Strategist; EUR/USD on TradingView

  • EUR/USD clears the June low (1.0662) as it snaps the opening range for September, with recent developments in the 50-Day SMA (1.0936) highlighting a potential change in trend as it now reflects a negative slope.
  • A break/close below the 1.0610 (38.2% Fibonacci retracement) to 1.0650 (78.6% Fibonacci retracement) region brings the March low (1.0516) on the radar, and the Relative Strength Index (RSI) may show the bearish momentum gathering pace should the oscillator push into oversold territory for the first time in 2023.
  • Next area of interest comes in around the January low (1.0483), but the RSI may continue to hold above 30 should EUR/USD defend the May low (1.0635).
  • Need a move above 1.0790 (51.8% Fibonacci retracement) to bring the monthly high (1.0882) back on the radar, with a break/close above the 1.0880 (23.6% Fibonacci extension) to 1.0940 (50% Fibonacci retracement) area opening up the August high (1.1065).

Additional Market Outlooks

AUD/USD Forecast: Australian Dollar Steady Ahead of Jobs Report

British Pound Forecast: GBP/USD Head-and-Shoulders Pattern Unfolds

--- Written by David Song, Strategist

Follow on Twitter at @DavidJSong

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