The EUR/USD pair continued its downward trend, falling below 1.1600 to reach 1.1572 as market participants showed a preference for the Dollar in light of escalating U.S.–China tensions and anticipations of a Federal Reserve rate cut in the upcoming week. The demand for the dollar increased as investors looked for safety amid global market fluctuations, whereas the euro encountered compounded challenges from declining exports and escalating fiscal worries in France. The 14-day RSI at approximately 43 indicates bearish momentum, while the MACD remains in negative territory, suggesting a continued downside bias. A significant breach below 1.1570 would reveal 1.1500 and possibly 1.1430, levels that have not been observed since early summer.
S&P Global’s downgrade of France’s credit rating from AA- to A+ late last week has led to increased pressure on Eurozone assets, negatively impacting investor confidence in the region’s fiscal outlook. The decision underscored increasing debt apprehensions and fiscal deterioration in the context of declining industrial performance and reduced export levels. This downgrade exacerbates the overall weakness in Europe, as euro-area exports to the U.S. have decreased by 22% year-over-year in August, marking the most significant decline in four years, while exports to China have reached a 43-month low. The data highlights the euro’s susceptibility to global trade interruptions and the increasing impact of tariffs.
The European Central Bank is exercising caution, as President Christine Lagarde is set to address the public later today. Investors are seeking insights into the ECB’s strategy regarding inflation control and liquidity measures amidst a slowdown in euro-area growth. Despite stable unemployment hovering around 6% and inflation nearing 2%, policymakers continue to exercise caution regarding the tightening of USD funding conditions. Economist Philip Lane has cautioned that strains in dollar liquidity may exert additional pressure on European banks, thereby constraining the ECB’s capacity to act. The euro’s failure to regain the 1.1670–1.1750 resistance range highlights the absence of strong confidence in a lasting recovery ahead of Lagarde’s speech.
The Federal Reserve is anticipated to implement a 25-basis-point reduction next week, as markets are pricing in nearly a 100% likelihood for this action and a further 95% probability for an additional cut in December. Nevertheless, the current government shutdown, which has now extended into its fourth week, is impacting the flow of U.S. economic data and creating challenges for pricing in upcoming meetings. In light of the prevailing uncertainty, the Dollar Index experienced a rebound to 98.95, bolstered by safe-haven flows and a degree of economic resilience. Experts concur that despite potential cuts, the Dollar could continue to be in demand as global growth decelerates and the Fed emphasizes financial stability rather than immediate easing. From a technical perspective, EUR/USD continues to be constrained beneath its 20-, 50-, and 200-period moving averages, reinforcing the robustness of the bearish trend. The pair was unable to maintain rebounds above 1.1650, which strengthens the near-term resistance level. The RSI approaching 35 on the 4-hour chart indicates that oversold conditions could emerge; however, selling pressure remains prevalent until a daily close surpassing 1.1700 is achieved. The essential support range between 1.1560 and 1.1500 continues to be pivotal, whereas a break below 1.1470 would reveal a potential decline towards 1.1430. Market participants are expecting that the upcoming U.S. CPI release on Friday may serve as a catalyst for a significant breakout, with headline inflation projected at 3.1% year-over-year.