US Dollar Forecast: EUR/USD Post-ECB Drop Brings Test of Monthly Low

Euro Outlook: EUR/USD

EUR/USD continues to pull back from a fresh monthly high (1.0694) as the European Central Bank (ECB) keeps Euro Area interest rates on hold, and the exchange rate may struggle to retain the advance from the monthly low (1.0448) as it appears to be tracking the negative slope in the 50-Day SMA (1.0672).

US Dollar Forecast: EUR/USD Post-ECB Drop Brings Test of Monthly Low

EUR/USD extends the series of lower highs and lows from earlier this week as the ECB warns that ‘past interest rate increases continue to be transmitted forcefully into financing conditions,’ and it seems as though the Governing Council is at the end of its hiking-cycle as Euro Area interest rates ‘are at levels that, maintained for a sufficiently long duration, will make a substantial contribution to the timely return of inflation to our target.’

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As a result, EUR/USD may depreciate ahead of the Federal Reserve interest rate decision on November 1 as President Christine Lagarde and Co. pledge to ‘follow a data-dependent approach,’ but data prints coming out of the US may produce headwinds for the Greenback as the Personal Consumption Expenditure (PCE) Price Index is anticipated to show slowing inflation.

US Economic Calendar

FOREX.com Economic Calendar

The core PCE, the Fed’s preferred gauge for inflation, is expected to print at 3.7% in September compared to the 3.9% reading the month prior, and evidence of easing price growth may generate a bearish reaction in the US Dollar as it encourages the Federal Open Market Committee (FOMC) to keep US interest rates on hold.

At the same time, a higher-than-expected core PCE print may drag on EUR/USD as it puts pressure on the FOMC to further combat inflation, and the exchange rate may struggle to retain the advance from the monthly low (1.0448) as it extends the series of lower highs and lows from earlier this week.

With that said, developments coming out of the US may sway EUR/USD as the ECB moves to the sidelines, and the exchange rate may track the negative slope in the 50-Day SMA (1.0672) as it falls back after testing the former support zone around the May low (1.0635).

EUR/USD Chart – Daily

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

• EUR/USD may struggle to retain the advance from the monthly low (1.0448) as it carves a series of lower highs and lows, and the exchange rate may track the negative slope in the 50-Day SMA (1.0672) following the test of the former support zone around the May low (1.0635).
• Failure to defends the monthly low (1.0448) brings the December 2022 low (1.0393) on the radar, with the next area of interest coming in around 1.0370 (38.2% Fibonacci extension).
• Nevertheless, EUR/USD may track the monthly range if it snaps the bearish price action from earlier this week, with a move above the 1.0610 (38.2% Fibonacci retracement) to 1.0650 (78.6% Fibonacci retracement) region raising the scope for another run at the moving average

Additional Market Outlooks

Canadian Dollar Forecast: USD/CAD Eyes Yearly High with BoC on Hold

US Dollar Forecast: GBP/USD Stalls Again at Former Support Zone

--- Written by David Song, Strategist

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