The EUR/USD currency pair is experiencing selling pressure as the US Dollar continues to gain strength ahead of the release of the US Consumer Price Index (CPI) data for September. The focus from Federal Reserve officials is primarily on stimulating job growth. Meanwhile, the EURO is facing challenges as the European Central Bank (ECB) is anticipated to further reduce interest rates by 50 basis points before the year’s end.
On Thursday, the EUR/USD performance weakened significantly, having fallen below the critical support level of 1.0950 the previous day. The US Dollar’s (USD) sturdy position is buoyed by expectations surrounding the US CPI report, which is set to be released at 12:30 GMT. The US Dollar Index, which measures the currency against six major peers, is hovering near a seven-week high around 103.00. Economists predict that the core CPI, excluding volatile food and energy prices, will show a steady increase of 3.2%. They also expect the annual headline CPI to ease to 2.3%, dropping from 2.5% in August, with month-on-month growth rates forecasted at a slower 0.1% for headline and 0.2% for core.
The market’s reaction to the inflation report is likely to be tempered, as recent comments from Fed officials suggest that they are optimistic about price pressures aligning with their 2% target. The Fed is notably concentrating on enhancing labor demand, which prompted a 50 basis-point reduction in rates during the September policy meeting. Nevertheless, should the inflation data reveal unexpectedly high figures, fears regarding persistent inflation could arise, complicating expectations for additional rate cuts later in the year.
The EUR/USD is currently vulnerable, trading near an eight-week low of 1.0940, facing multiple challenges. The EURO ’s underperformance is attributed to dovish sentiments surrounding the ECB and the potential for further interest rate cuts. ECB officials have increasingly voiced their support for additional rate reductions due to softening inflationary pressures in the Eurozone, with the latest report indicating a decline in the annual Harmonized Index of Consumer Prices to 1.8%, the lowest since April 2021.
Compounding these issues, Germany’s economic outlook has weakened, with the Ministry of Economy projecting a 0.2% decline in output for the year. This revision followed earlier forecasts of 0.3% growth, reflecting ongoing structural and geopolitical challenges. A contraction in the German economy, being the largest in the Eurozone, poses significant risks for the EURO .
On a more positive note, German Retail Sales showcased resilience, growing by 2.1% in August following a contraction in July. Month-on-month metrics also indicated an uptick in consumer spending. Despite this, technical indicators show that EUR/USD remains under pressure, trading close to recent lows, and the momentum could favor continued declines. Key resistance levels include the September 11 low of 1.1000 and a 20-day moving average at 1.1090. Support is anticipated near the 200-day exponential moving average around 1.0900.
