EUR/USD Forecast: EUR/USD struggling for direction just above 1.1000

EUR/USD Current price: 1.1025

• The European Central Bank trimmed the main benchmark rate by 25 basis points.
• The United States Producer Price Index rose by less than anticipated in August.
• EUR/USD bounces modestly from near 1.1000, technical readings favor a bearish breakout.

The EUR/USD pair spent the first part of the day consolidating just above the 1.1000 mark, lifeless ahead of the European Central Bank (ECB) monetary policy announcement. Generally speaking, financial markets head into the event in a positive mood after digesting United States (US) inflation figures. The country released the August Consumer Price Index (CPI) on Wednesday, with the figures broadly aligned with expectations yet falling short of boosting speculation of an aggressive Federal Reserve (Fed) interest rate cut. As an immediate reaction, markets turned risk-averse, fueling US Dollar demand.

The sentiment improved ahead of Wall Street’s close, further supported by a rally in the tech sector. As a result, Asian and European indexes surged ahead of the ECB, keeping USD demand in check.

The ECB finally announced its decision, which was more dovish than anticipated: policymakers lowered the deposit facility, also known as the benchmark interest rate, by 25 basis points to 3.5%. The interest rate on the main refinancing operations was cut by 60 bps to 3.65%, while the interest rates on the marginal lending facility was also trimmed by 60 bps, to 3.9% from 4.5% previously. The Euro ticked higher with the news but showed no actual reaction to the headlines.

The accompanying statement included a mixture of dovish and hawkish comments. On the one hand, officials said that financing conditions are still restrictive and that the economic activity remains subdued. On the other hand, policymakers upwardly reviewed their inflation forecasts, which could be seen as hawkish.

Ahead of President Christine Lagarde’s speech, the US released the August Producer Price Index (PPI), which rose by 1.7% from a year earlier, below the 1.8% expected and the previous 2.1%. On a monthly basis, the PPI was up by 0.2%, slightly above the 0.1% anticipated.  At the same time, Initial Jobless Claims for the week ended September 6 met expectations by printing at 230K.

EUR/USD short-term technical outlook

From a technical point of view, the daily chart for the EUR/USD pair is at risk of falling. In the daily chart, the pair consolidates losses at the lower end of its Wednesday’s range, still developing well below a flat 20 Simple Moving Average (SMA). The longer moving averages remain far below the current level and turning flat, suggesting easing buying interest. At the same time, the Momentum indicator keeps heading firmly south within negative levels, while the Relative Strength Index (RSI) indicator consolidates around 48, both skewing hte risk to the downside.

For the near term, the 4-hour chart favours a bearish breakdown. A bearish 20 SMA keeps containing advances, while EUR/USD rests on a mildly bullish 200 SMA. Technical indicators, in the meantime, remain within negative levels without clear directional strength. The pair needs to break through the 1.0990 support to confirm another leg lower in the upcoming sessions.

Support levels: 1.0990 1.0950 1.0910

Resistance levels: 1.1050 1.1090 1.1140