EUR/USD Price Forecast: Bears could take a pause for breather near 1.0600, or YTD low

The EUR/USD pair drifts lower for the third successive day – also marking the fourth day of a negative move in the previous five – and drops to a nearly seven-month low, around the 1.0620 region during the early European session on Tuesday. The US Dollar's (USD) post-election rally remains uninterrupted amid expectations US President-elect Donald Trump's protectionist policies could boost inflation in the long term and limit the scope for the Federal Reserve (Fed) to ease its monetary policy. In fact, the CME Group's FedWatch Tool indicates that traders are currently pricing in around a 65% chance of a 25-basis-points (bps) rate cut and a 35% probability of an on-hold decision at the next FOMC meeting in December. This remains supportive of elevated US Treasury bond yields, which continue to underpin the USD and turn out to be a key factor exerting downward pressure on the currency pair. 

Meanwhile, Europe remains a key target of the highly probable tariffs on its exports to the US under the second Donald Trump presidency. Moreover, the shared currency is feeling additional pressure from political uncertainty in Germany – the Eurozone's biggest economy. Chancellor Olaf Scholz's decision to fire Finance Minister Christian Lindner over persistent rifts on spending and economic reforms effectively removed the fiscally conservative Free Democratic Party  (FDP) from the three-party ruling coalition. Adding to this, Scholz's remaining coalition partner,  the Greens, joined opposition calls for an earlier parliamentary vote on Monday, opening the way to a snap election. This, in turn, undermines the Euro and suggests that the path of least resistance for the EUR/USD pair is to the downside. Traders now look to the release of the final German CPI print and German ZEW Economic Sentiment for a fresh impetus. 

Later during the US session, traders will take cues from speeches by influential FOMC members. Apart from this, the latest US consumer inflation figures on Wednesday and Fed Chair Jerome Powell's speech on Thursday will play a key role in influencing market expectations about the future rate-cut path. This, in turn, should drive the USD demand in the near term and help in determining the next leg of a directional move for the EUR/USD pair. Nevertheless, the aforementioned fundamental backdrop suggests that any attempted recovery could be seen as a selling opportunity and runs the risk of fizzling out rather quickly.

Technical Outlook

From a technical perspective, the Relative Strength Index (RSI) on the daily chart has moved on the verge of breaking into the oversold zone. Hence, any subsequent slide is likely to find decent support near the 1.0600 mark, or the year-to-date (YTD) low touched in April. Some follow-through selling should pave the way for a slide towards the 1.0540 intermediate support before spot prices eventually drop to challenge the 1.0500 psychological mark.

On the flip side, the daily swing high, around the 1.0660-1.0665 region, now seems to act as an immediate hurdle ahead of the 1.0700 mark. Some follow-through buying beyond the 1.0725-1.0730 region could lift the EUR/USD pair to the 1.0770 area en route to the 1.0800 mark. A sustained strength beyond the latter might trigger a short-covering rally and pave the way for a move towards the 1.0860-1.0870 region en route to the 1.0900 round figure. The momentum could extend further towards the monthly peak, around the 1.0935 area touched last week, above which spot prices could aim to reclaim the 1.1000 psychological mark.

EUR/USD daily chart