Market Analysis

EUR/USD Tests Two-Month Lows as Dollar Strengthens Amid Fed Speculation

Dupoin · 22 Oct18.3K Views

EURUSD

Forecast: Downward Momentum Continues

Fundamental Analysis:

EUR/USD extended its sharp multi-week decline on Monday, testing two-month lows near the 1.0800 level and staying below the critical 200-day Simple Moving Average (SMA) at 1.0871. The US Dollar (USD) maintained its strength, with the US Dollar Index (DXY) approaching the 104.00 mark, a level last seen in early August. The USD's upward momentum has been supported by rising US Treasury yields, which are hitting multi-week highs across the curve. The dollar rally, which has been gaining steam throughout the month, is backed by solid US economic data and cautious commentary from Federal Reserve (Fed) officials. Additionally, the resurgence of the “Trump trade” on Monday further boosted the dollar.

While several Fed policymakers are leaning towards a 25 basis point interest rate cut in the near future, some officials, like FOMC Governor Michelle Bowman and Atlanta Fed President Raphael Bostic, have voiced a more cautious approach. Bostic even hinted that the Fed may hold off on a rate cut in November. According to the CME Group’s FedWatch Tool, there is currently an 85% chance of a quarter-point cut being priced in for next month.

Technical Analysis:

If the EUR/USD pair continues to weaken, it could test its recent low of 1.0810 (from October 17), followed by the psychologically important 1.0800 level, and potentially the August low of 1.0777 (from August 1). On the upside, initial resistance is found at the 100-day and 55-day SMAs, located at 1.0935 and 1.1038, respectively. Beyond that, the 2024 high of 1.1214 (from September 25) and the 2023 peak of 1.1275 (from July 18) serve as key resistance points. However, staying below the 200-day SMA at 1.0871 could signal a more bearish outlook.

On the four-hour chart, the pair is continuing its downward trend, with early support at 1.0810, followed by 1.0777. On the upside, resistance is found at the 55-SMA at 1.0897, followed by 1.0954 and the 100-SMA at 1.0968. The Relative Strength Index (RSI) is below the 30 threshold, indicating oversold conditions.

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