EUR/USD Forecast: Fed-fueled a breakdown of critical downtrend support – further falls on the cards

EUR/USD has finally chosen where to go – down. The sharp downfall to the lowest since May 2017 has been fueled by another decision. The Federal Reserve has cut interest rates as expected but conveyed a confident message. Fed Chair Jerome Powell has stated that the outlook remains favorable and that the rate cut – the first since the crisis – is not the beginning of a long cycle of rate reductions.

The Fed opted for introducing monetary stimulus in reaction to lower inflation and mostly concerns about global growth – but reiterated its stance that this is only an "insurance" cut. Moreover, two out of ten voting members dissented and preferred leaving the rates unchanged. 

The result of this "hawkish cut" was a considerable gain for the US dollar that saw EUR/USD drop below the previous 2019 low of 1.1101 to a new trough at 1.1032.

Will the world's most popular currency pair continue lower? 

The next move in the US depends on the all-important jobs report due tomorrow, where an upside surprise – or at least an adverse EUR/USD outcome cannot be ruled out. 

See Non-Farm Payrolls Preview: Focus on wages in a dollar-friendly setup – Five  EUR/USD scenarios

The last hint towards the NFP is due today with the ISM Manufacturing Purchasing Managers' Index (PMI), which is expected to show moderate growth in the sector. See ISM Manufacturing PMI Preview: The homeward turn

The parallel PMIs from Europe look significantly worse. While the final manufacturing PMI for the euro-zone came out above expectations at 46.5 points – it reflects ongoing contraction. Figures released on Wednesday also failed to encourage. The economy grew by 0.2% – as expected, but half the pace in the first quarter. Inflation data has also been a cause of concern. And here, the data already fell short of expectations – the Core Consumer Price Index slowed down to 0.9% in the preliminary read for July. 

EUR/USD long-term line broken

Before we move onto the regular technical analysis, it is essential to note that EUR/USD has broken below a long-term line that has been a strict separator of trading ranges. The trendline, spotted by FXStreet's Tomas Salles, is a downtrend one on the weekly chart. The fall of EUR/USD below such a critical level opens the door to further falls.

Here is how it looks:

More Powell's power-play: Three key comments that crushed EUR/USD – big levels to watch

EUR/USD Technical Analysis

We will use the weekly chart also here to see the next downside levels. Below 1.1032, we note 1.1025, which served as resistance in May 2017. 1.0960 worked as resistance in April and awaits below the round 1.1000 psychological barrier. The round number of 1.0900 is next down the line after working as a swing high in March that year.

On the upside, the previous 2019 low of 1.1101 mentioned earlier is the first cap. Next, we find 1.1120, which was a temporary low beforehand. Further up, the last week's high of 1.1190 is a substantial cap. 1.1240 is next.