- EUR/USD fell to the 20-day EMA, which could pave the way for further losses.
- The increase in inflation in the Eurozone, the weakening of the economy and the rise in rates by the ECB paint a gloomy scenario for the bloc.
- EUR/USD Price Preview: Failure to break above the 0.9900 level exposes the major pairs to selling pressure.
EUR/USD breaks two days of gains and falls below 0.9800, after Eurozone (EU) inflation remained high, while the US housing market continues to feel the “pain” of the increase in interest rates, which would continue to increase, as Fed spokesmen have reiterated. At the time of writing, the EUR/USD pair is trading at 0.9770, down 0.88%, after reaching a daily high of 0.9872.
Euro falls on high EU inflation as stagflation looms
September inflation in the euro zone increased by 1.2% MoM and 9.9% YoY, raising the likelihood of a third consecutive interest rate hike of 75 basis points by the European Central Bank (ECB). A number of policymakers had made the case for a ¾% rise in the bank rate, despite the fact that over the last week, the International Monetary Fund (IMF) forecast a recession in Germany and Italy in 2023.
Against the background of mixed sentiment in the euro zone, as shown by the October ZEW survey, which hints at a recession, EUR/USD appreciated. Factors such as the general weakness of the US dollar and the stability of the UK bond market caused a rally in risk assets.
Aside from this, US economic data, specifically housing starts in September, fell 8.1% MoM, due to the US Federal Reserve’s aggressive monetary policy tightening, with rates at about to hit the 4% threshold, as speculation mounts about another big rate hike.
The Fed’s hawkish rhetoric continues
On the other hand, the president of the Minnesota Fed, Neil Kashkari, stated that inflation is too high and that the federal funds rate (FFR) must be between 4.5 and 4.75% to deal with inflation. He added that the Fed would have to continue its tightening policy if inflation remains high.
EUR/USD Price Forecast
EUR/USD refrained from testing the upper trend line of a descending channel traced from February 2022, around the 0.9900 figure, exposing the Euro to selling pressure. Factors like the fundamentals and the Relative Strength Index (RSI) crossing into bearish territory and about to break its 7-day RSI SMA would pave the way for further losses. Therefore, key resistance levels would be tested, such as the 13 Oct swing low at 0.9631, followed by the year low at 0.9536.
Source: Fx Street
With 6 years of experience, I bring to the table captivating and informative writing in the world news category. My expertise covers a range of industries, including tourism, technology, forex and stocks. From brief social media posts to in-depth articles, I am dedicated to creating compelling content for various platforms.
