The euro has experienced significant losses following the European Central Bank’s (ECB) decision to cut interest rates, signaling the possibility of more cuts through the second quarter of next year. In contrast, the U.S. Federal Reserve (Fed) appears less likely to adopt a dovish stance in its upcoming meetings. This article provides a summary of the euro’s recent performance and takes a closer look at the charts of EUR/USD and EUR/GBP.
ECB Lowers Main Refinancing Rate to 3.4%
On October 17, the ECB lowered the eurozone’s main refinancing rate to 3.4%, citing steady progress in reducing inflation. Final headline inflation for September came in at 1.7%, slightly below the initial estimates and consensus, which had pegged it at 1.8% and 1.9% respectively. This decline marks a positive step toward the ECB’s goal of controlling inflation and suggests that further monetary loosening could be on the horizon. However, the ECB emphasized the importance of evaluating incoming data before making any further decisions.
Despite the progress in curbing inflation, the sharp decline in inflation rates between August and September has weakened sentiment toward the euro. The ECB now appears to be the most dovish among major central banks, though this stance could change depending on future inflation and employment data releases. Inflation dropped across Germany, France, Italy, and Spain—the eurozone’s largest economies—but rising food inflation in September could pose a risk in the coming months.
EUR/USD: A Strong Decline Amid Oversold Conditions
The euro has experienced a sharp decline against the U.S. dollar throughout October, with only the 100-day simple moving average (SMA) providing notable support. The current price action suggests that EUR/USD is now deeply oversold, raising questions about whether the downtrend will continue without a pause.
The $1.08 level is expected to act as significant support, as it marked the start of the uptrend in August. If this level is breached, traders may turn their attention to the 100% monthly Fibonacci retracement level at around $1.07. However, a strong fundamental driver would likely be needed to push the euro below this threshold.
With no major economic data releases expected until the GDP report on October 30, a period of consolidation seems more likely than a continuation of the downtrend. Traders will also be closely watching for any news or polling updates related to the upcoming U.S. elections, which could impact market sentiment.
EUR/GBP: Persistent Downtrend Shows Potential for Further Losses
The euro has also weakened against the British pound, continuing a downtrend that has been in place since August. Unlike EUR/USD, there is no indication of selling exhaustion in the EUR/GBP pair, and trading volume remains higher than usual compared to the euro-dollar pair.
While there is potential for further losses, repeated tests of key support levels are often less likely to break through. A move below 82 pence would mark an eight-year low, but this range (82-83p) has proven resilient since December 2016. A sustained breakout below this level in 2024 would likely require a major shift in sentiment or new developments in economic data.
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