EUR/USD outlook: Forex Friday – October 11, 2024

The EUR/USD was unable to close above the key 1.0950 short-term resistance level on Thursday, despite the US dollar weakening against most other currencies on the day on the back of mixed data. Consequently, the single currency was on the backfoot again with the greenback rebounding from earlier weakness at the time of writing on Friday. Investors were looking forward to the release of more inflation data from the US, with PPI and UoM Inflation Expectations both coming up. On Thursday, we saw CPI come in hotter, but there was a lack of a positive response in the dollar. This shows that the market is no longer laser focused on inflation data, something which might be apparent again today. Indeed, with the Fed’s attention being on its other mandate – ensuring maximum employment – traders reacted more to news that US initial jobless claims surged to a 13-month high last week. The UoM Consumer Sentiment may also impact the dollar somewhat, although it will be external developments that will most likely move the dollar and impact the EUR/USD outlook from here on. Above all, Middle East tensions, with Israel yet to strike Iran in retaliation. The potential news of more stimulus from China at the weekend could provide the euro some relief as a risk-sensitive currency. All told however, the risks remain skewed to the downside for the EUR/USD as things stand.

US dollar remains on the front foot

It looks like there is not much room for further dovish repricing in US interest rates, meaning that the dollar should remain supported until more employment data suggests otherwise or we see de-escalation in the Middle East tensions. After pricing in around 75 basis point cuts by year-end, the market is now expecting around 45 basis points worth of rate cuts. That points to slightly less than two 25bps cuts. While Fed’s Bostic – a well know hawk – is open to the idea of a pause in the Fed’s easing, this is highly unlikely because of the fact the FOMC has just delivered a large rate cut and would look really silly to apply the brakes this soon. Indeed, some of the other Fed officials that have spoken yesterday have all shrugged off the hotter CPI print.

With not much on the agenda in the US economic calendar next week, watch out for external factors to move the dollar. Among them is crude oil which has been pushing higher again of late amid expectations of an Israel attack on Iran’s oil facilities, which could lead to disruptions in supply. Israel's defence minister stated that the country's next move will be unexpected, while Iran has vowed retaliation if targeted, likely adding to the uncertainty and delaying any de-escalation of tensions. This situation is expected to continue bolstering the dollar in the short term.

EUR/USD outlook: ECB set to cut rates by 25 basis points

Next week, the focus will be on the European Central Bank’s rate decision, taking place on Thursday, October 17. A 25-basis point rate cut is expected for this meeting. Eurozone activity data remains subdued while inflation has been trending lower. Holding the ECB from being more aggressive in its rate-cutting is the still-strong wage growth in Eurozone, and the fact that the Fed has signalled it won’t cut rates aggressively again following its initial 50 basis point rate cut. Middle East tensions add another layer of uncertainty for Eurozone given that its largest member states are all net energy importers. Ahead of this meeting, don’t expect any official comments from ECB members. Meanwhile, the eurozone calendar is currently light on market drivers, too. The recent ECB minutes provided little clarity about the upcoming October meeting.

Technical EUR/USD outlook: key levels to watch

Source: TradingView.com

The EUR/USD was a touch positive earlier, but at the time of writing it was turning lower after testing the lower end of the previous support zone around 1.0950 to 1.0960. This area acted as resistance yesterday and has held again thus far today. If this level doesn’t hold by the close of play, and we break through it, the we might see a move toward the stronger resistance around the 1.10 area in early next week.

If selling resumes, there could be a push to take out liquidity resting below this week’s low of 1.0900. A break below the 1.0900 level would target the next downside at 1.0875, where the 200-day moving average comes into play.

Overall, the EUR/USD outlook remains bearish, but with limited further downside potential from here on.

-- Written by Fawad Razaqzada, Market Analyst

Follow Fawad on Twitter @Trader_F_R