EUR/USD Weekly Forecast: ECB’s decision unlikely to help the Euro

The EUR/USD pair fell towards a fresh two-month low of 1.0900, finishing the second consecutive week in negative though little changed at around 1.0940. The US Dollar (USD) shed some ground at the beginning of the week but resumed its advance following United States (US) headlines.

What happened in the US?

The Federal Open Market Committee (FOMC) released the Minutes of its September meeting on Wednesday, showing that almost all participants agreed that the upside risks to inflation had diminished and that a “substantial” majority backed a half-point interest rate cut, although some preferred 25 basis points (bps). Policymakers also noted that the risks to employment and inflation goals are now seen as “roughly in balance.”

The USD seesawed between gains and losses after the announcement, with investors finally deciding to give the Greenback a vote of confidence.

On Thursday, the US published the September Consumer Price Index (CPI) data. Inflation, as measured by the CPI, rose 0.2% in the month and 2.4% from a year earlier, slightly above the market’s expectations. The core figures were also higher than anticipated, but not enough to twist the Federal Reserve’s (Fed) hand. Market participants are still betting the central bank will deliver a 25 bps rate cut in November.

The reasoning behind such speculation is that employment-related data released since the meeting had shown that the labor market is stronger than what officials thought when they voted for a 50 bps trim.

Meanwhile, multiple Fed officials were on the wires throughout the week, most of them supporting the decision and sounding confident inflation will soon reach the central bank’s goal.

Other than that, the US published Initial Jobless Claims for the week ending October 4, which was a bit disappointing, as claims unexpectedly increased by 258K. On Friday, the country released the September Producer Price Index (PPI), which rose 1.8% YoY, easing from the previous 1.9%, but above the 1.6% expected. On a monthly basis, the PPI was unchanged, while the core PPI was up 0.2%

Europe is not out of the woods yet

News coming from the Old Continent were far from encouraging. German Factory Orders fell a whopping 5.8% MoM in August, although Industrial Production in the same month beat expectations by rising 2.9%. Retail Sales posted a modest 1.6% advance in August, while the September Harmonized Index of Consumer Prices (HICP) was confirmed at -0.1% month-on-month (MoM) and 1.8% year-over-year (YoY).

In the Eurozone, Retail Sales increased a modest 0.8% in August, while Sentix Investor Confidence improved to -13.8 in October from -15.4 in the previous month.

Additionally, the European Central Bank (ECB) released the Accounts for the September meeting. The document showed policymakers expect inflation to tick higher before declining towards the target over the second half of 2025. Officials also noted that the negative surprise in the Purchasing Managers Index (PMI) manufacturing output indicated potential headwinds to the near-term outlook.

Other factors driving sentiment

The EUR/USD pair, however, is not just about what happens in Europe or the US. Financial markets are keeping an eye on China, as the government anticipates stimulus measures to revive the economy, but so far, it has provided little detail on those. The enthusiasm triggered by the initial announcement faded, while investors are now waiting for the Chinese Finance Minister to deliver an explanatory press conference over the weekend.

The sentiment also waved with Middle East news amid mounting geopolitical tensions, which keep adding upward pressure to Oil prices.

Nevertheless, Wall Street retained good shape, with the S&P500 posting yet another record high. US stocks’ momentum reflects optimism about the US economy, limiting the USD bearish potential despite a dovish Fed.  

What’s next in the docket

The upcoming week will bring the European Central Bank (ECB) monetary policy decision on Thursday. European policymakers are widely expected to deliver a 25 basis points (bps) interest rate cut, as ECB officials have paved the way for additional trims amid the economic setback undergoing the Union. The central bank has lowered rates twice this year,  but roughly 90% of market players believe the ECB will keep delivering meeting-by-meeting 25 bps in the upcoming decisions.  

Other than that, the EU will release the August Industrial Production on Tuesday and the final estimate of the September HICP on Thursday. Germany will publish the October ZEW Survey on Economic Sentiment on Tuesday, while in the US, the focus will be on Retail Sales and Industrial Production figures on Thursday.

EUR/USD technical outlook  

From a technical point of view, the EUR/USD pair is biased lower. The bearish breakout of the 1.1000 mark has a clear psychological impact on bulls. Technical readings in the weekly chart support the bearish case scenario, as the pair spent the week below a bearish 200 Simple Moving Average (SMA). At the same time, EUR/USD is battling a flat 20 SMA, while the 100 SMA has also lost its directional strength at around 1.0810. Finally, technical indicators maintain their firm downward slopes and are about to cross their midlines into negative levels, which is necessary to confirm a sustained mid-term decline.

On a daily basis, EUR/USD may correct higher given the latest developments, but it seems far from turning bullish. Technical indicators are bouncing from near-oversold readings, aiming north well below their midlines. At the same time, the pair is overcoming a mildly bullish 100 SMA, while the 20 SMA gains bearish strength well above the current level, suggesting sellers paused but have not yet given up.

The weekly low at 1.0900 provides immediate support, followed by the 1.0800 figure. A break below the latter exposes 1.0776, the August monthly low. Resistance, on the other hand, is allocated at 1.1000, with clear gains beyond the level exposing the 1.1070 area en route to 1.1140.