EUR/USD Price Forecast: Down, down, down you go

EUR/USD faced renewed selling pressure early this week, building on losses from Friday and plunging to new yearly lows in the sub-1.0600 region on Tuesday.

The euro’s retracement was largely driven by a strong surge in the US Dollar (USD), which sent the US Dollar Index (DXY) climbing above the 106.00 mark, or multi-month highs. This rally was fueled by market optimism surrounding the so-called “Trump trade,” with investors betting on potential policies under the incoming Trump administration.

Contrasting with the pair’s pullback, German 10-year bond yields made a decent U-turn and approached 2.40% after two daily drops in a row.

On the policy front, the Federal Reserve (Fed) lowered its target range for the Fed Funds Rate by 25 basis points last week, bringing it to 4.75%-5.00%, in line with expectations.

The Fed’s statement noted that inflation is gradually nearing the 2% target, while the labour market shows signs of softening despite low unemployment rates. The central bank described the risks to both employment and inflation as “roughly balanced,” consistent with its previous messaging in September. Interestingly, the Fed slightly tweaked its language, now saying inflation has “made progress,” rather than “made further progress.”

Fed Chair Jerome Powell was cautious about making any promises regarding December’s policy decision, citing ongoing economic uncertainty. He pointed out that recent positive data had eased some risks but was firm in stating he would not resign if asked by President-elect Trump.

On Tuesday, Richmond Fed President Thomas Barkin argued that the Fed is ready to adjust its policies if inflation rises or the labour market weakens. He added that the bank’s actions will hinge on business sentiment—whether firms grow more confident with lower rates and post-election clarity or continue to act cautiously, potentially resorting to layoffs.

Meanwhile, in Europe, the European Central Bank (ECB) cut its deposit rate to 3.25% on October 17 but signalled a wait-and-see approach before making any further moves, focusing on upcoming economic data for guidance.

With both the Fed and ECB facing crucial policy decisions, the future direction of EUR/USD will largely depend on broader economic trends.

Looking ahead, the new Trump administration is expected to implement tariffs on European and Chinese imports and take a more relaxed approach to fiscal policy in the US, potentially driving inflation higher.

Against that, if the Fed shifts toward a more cautious or dovish stance, rethinking potential rate hikes, this might provide another boost for the Greenback.

In terms of market positioning, speculative net short positions in the euro have eased to a three-week low, standing at around 21.6K contracts as of November 5, according to the latest CFTC report. At the same time, hedge funds and commercial traders have slightly reduced their net long positions, now just above 600 contracts, amid a small drop in open interest.

EUR/USD daily chart

EUR/USD short-term technical outlook

Extra losses might drive the EUR/USD down to its 2024 low of 1.0594 (November 12), ahead of the November 2023 low of 1.0516 (November 1) and the 2023 bottom of 1.0448 (October 3).

On the upside, the 200-day SMA of 1.0867 serves as immediate resistance, followed by the November high of 1.0936 (November 6) and the intermediate 55-day SMA of 1.0966.

Meanwhile, additional decline is expected as long as the EUR/USD continues below the 200-day SMA.

The four-hour chart illustrates that the negative trend has picked up. Against this, first support is at 1.0594, ahead of 1.0516. On the other side, the immediate up-barrier is 1.0726, seconded by 1.0824. The relative strength index (RSI) collapsed to around 21.