EURUSD Forecast: Pricing in the Rate Cut Case

Key Events:

• EUR/USD Forecast: ECB Main Refinancing Rate (Thursday)
• ECB Press Conference (Thursday)
• US Retail Sales (Thursday)
• US Unemployment Claims (Thursday)

The ECB’s president, Christine Lagarde, highlighted in her speech on September 30th that inflation rates are returning toward the 2% target. This was followed by a sharp decline in Eurozone CPI estimates to 1.8%, falling below the ECB’s target faster than expected, along with near-zero inflation in Germany.

With Eurozone inflation slowing and growth remaining sluggish, markets are beginning to price in potential rate cuts by the ECB toward the end of the year. This shift is being anticipated more clearly than the monetary policy track of the Federal Reserve. websites!

As markets often react ahead of central bank decisions, the euro is facing selling pressure, pushing the EURUSD pair below the 1.09 support level. The pair is now trading within the familiar price range seen between 2023 and 2024.

With all the developments, the markets can price in one story, and the ECB will proceed with its policies with a meeting-by-meeting approach

Technical Analysis

EURUSD Forecast: 3Day Time Frame – Log Scale

Source: Tradingview

According to technical patterns, the EURUSD appears to have formed a double top around the 1.120 resistance area between August and September 2024. This coincided with strong support for the U.S. Dollar Index (DXY) at its December 2023 lows.

Tracing the target of the pattern, the EURUSD is expected to drop further towards the 1.0790-1.0780 zone if it closes close below the 1.0880 support. The crucial support level that separates a neutral-to-bearish outlook from a more pronounced bearish scenario lies at 1.0680.

From the upside, as the EURUSD remains near the upper boundary of the consolidation range, the 1.0880 level serves as strong support. If the monetary policy decision aligns with market expectations, a "priced in" effect could propel the EURUSD towards the 1.12 zone. The key level distinguishing a neutral from a bullish scenario would be the 1.1320 resistance.

--- Written by Razan Hilal, CMT – on X:@Rh_waves