(Click on image to enlarge)Commenting on the pair’s performance, W. Brad Bechtel, an analyst at Jefferies, an investment banking and capital markets firm, explains: “200-day moving averages can be key pivot points over long horizons, and currencies, along with other assets, tend to get ‘stuck’ above or below their moving averages for several months at a time.”
EUR/USD Technical analysis and forecast:Technically, the 200-day moving average is at 1.0871, and early indications suggest that the technical level is now acting as a ceiling, as last week’s bounces failed to clear the hurdle. Therefore, the coming days could see EUR/USD struggle with the pair below the 200-day moving average, and it could be vulnerable to retesting last week’s low of 1.0810.Fundamentally, the euro is under pressure as financial markets now believe that the European Central Bank will cut interest rates more, and faster, than the US Federal Reserve. This has led to a decline in eurozone bond yields relative to US bond yields, providing a fundamental narrative for the EUR/USD decline. According to analysts at Société Générale, “near-term support for the euro-dollar is at 1.0778, the low of early August. A deeper decline in a repeat of 2016 cannot be ruled out if US yields gain upward momentum after the presidential election.”Furthermore, the European Central Bank responded last week to the deteriorating inflation dynamics in the eurozone by cutting interest rates by another 25 basis points. This week will see several speakers from the ECB, including ECB President Christine Lagarde herself, who will address this decision and what the future holds. Upside risks for the euro include ECB members seeking to temper expectations about the pace of future cuts, a possibility given how aggressive pricing has been recently. According to the market, the ECB is now more hawkish than the US Federal Reserve; financial markets are less convinced that there is an urgent need for a US rate cut due to better-than-consensus economic data suggesting that the US economy has gained momentum heading into the final quarter of the year. The Fed will cut US rates again in early November, but not by as much as previously expected (25 basis points, not 50 basis points) and there is a good chance that the Fed will call for caution on future rate cuts.On another factor influencing the forex market, the US election is less than two weeks away, and analysts say the recent outperformance of the US dollar is linked to signals that Donald Trump is the Favorite to win the vote. His tariff-heavy trade policy and generous tax-cut agenda are believed to support dollar expectations. In this regard, Fouad Razakzada, an analyst at City Index, says: “With Donald Trump gaining ground in the polls, markets have begun to factor in a possible win, which could keep the US dollar supported.”More By This Author:USD/JPY Forecast: Japanese Yen Remains Under PressureEUR/USD Analysis: Has It Reached Buying Levels? USD/JPY Analysis: Caution Amid Overbought Conditions
EUR/USD Analysis: Downward Forecast Remains Strongest
