EUR/USD Forecast: Under pressure despite resurgent optimism

EUR/USD Current price: 1.0927

• European inflation eased more than anticipated in October, weighing on the Euro.
• The US Core Personal Consumption Expenditures Price Index coming up next.
• EUR/USD turned mildly bearish in the near term, critical support at 1.0860.

The EUR/USD pair trades near the 1.0900 threshold as market participants await inflation-related news from the United States (US). The Euro came under intense selling pressure mid-European session, losing some 50 pips vs the US Dollar following market talks suggesting the European Central Bank (ECB) could pause the Pandemic Emergency Purchase Programme (PEPP) reinvestments in the last days of 2023 on low liquidity.

EUR/USD extended its slide to 1.0909 following the Eurozone Harmonized Index of Consumer Prices (HICP) release. Eurostat reported the HICP at 2.4% YoY, according to preliminary estimates, down from 2.9% in October and below the expected 2.7%. The monthly gauge was -0.5%, easing from 0.1% the previous month.

Meanwhile, ECB executive board member and Governor of the Bank of Italy Fabio Panetta said that the current interest rates level is consistent with bringing inflation down to target and warned about the “unnecessary damage” the ECB could cause through sustained high interest rates.

Coming up next, the US will publish the Core Personal Consumption Expenditures (PCE) Price Index, the  Federal Reserve’s (Fed) favorite inflation gauge. The Core PCE Price Index is expected to have increased 0.2% on a monthly basis in October and at an annual pace of 3.5%. The expected readings are below the final September figures, in line with easing price pressures. Softer-than-anticipated numbers could fuel speculation the Fed is done with monetary tightening and even anticipate the date of a potential rate cut for the first quarter of 2024. As a result, the US Dollar may fall on resurgent market optimism.

EUR/USD short-term technical outlook

The EUR/USD pair is sharply down on a daily basis, trading at around the 1.0920 level. The daily chart suggests the decline may continue, although in corrective mode, as overall, the risk remains skewed to the upside. EUR/USD develops above all its moving averages, with a bullish 20 Simple Moving Average (SMA) extending its advance above directionless 100 and 200 SMAs. Technical indicators turned lower, maintaining their bearish slopes, although well above their midlines.

For the near term, and according to the 4-hour chart, however, EUR/USD seems poised to extend its slide. The pair is below a now flat 20 SMA, which hovers around the 61.8% Fibonacci retracement of the 1.1275/1.0447 slide at 1.0960. The longer moving averages retain their bullish strength far below the current level, while technical indicators hold within negative levels, losing their directional strength.

Support levels: 1.0905 1.0860 1.0820

Resistance levels: 1.0960 1.1010 1.1050  

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