EUR/USD remains on the defensive ahead of ECB policy meeting

• EUR/USD remains below 1.0900 as the ECB is expected to cut its interest rates by 25 bps on Thursday.
• Increasing speculation about Donald Trump’s victory in the US presidential election has affected the Eurozone’s economic prospects.
• The Fed’s Waller advised a gradual reduction in interest rates over the next year.

EUR/USD is facing pressure due to the outperformance of the US Dollar in recent weeks. The US Dollar Index (DXY), which tracks the value of the greenback against six major currencies, extends its rise near 103.40. The greenback strengthens as traders see the US Federal Reserve (Fed) gradually reducing interest rates for the remainder of the year.

The Fed is expected to shift to a ‘moderate’ policy easing stance from ‘aggressive’ as fears of an economic slowdown have eased after the Nonfarm Payrolls (NFP) and Services Purchasing Managers’ Index ( US PMIs were expected to grow strongly, with price pressures rising faster than expected in September.

According to the CME FedWatch tool, traders are confident that the central bank will cut interest rates by 25 bps in November and December.

By contrast, Fed Governor Christopher Waller warned against interest rate cuts this week in a speech at Stanford University, citing that “Whatever the near-term outcome, my basis remains to reduce the rate.” policy rate gradually over the next year,” Reuters reported. When asked about the current state of the labor market, Waller said, “The labor market remains healthy even as labor demand is moderating.”

Looking ahead, the next trigger for the US dollar will be the monthly retail sales data for September, due to be released on Thursday. Economists expect retail sales data to have grown 0.3% after rising 0.1% in August.

Daily Market Summary: EUR/USD Trades Cautiously Ahead of ECB Policy

• EUR/USD falls further towards 1.0880 in the European session on Wednesday. The major currency pair weakens as the Euro (EUR) underperforms on expectations that the European Central Bank (ECB) will cut interest rates again on Thursday.
• It is widely anticipated that the ECB will reduce its Deposit Rate by 25 basis points (bps) to 3.25%. This would be the second consecutive interest rate cut by the ECB. With strong confidence that the ECB will cut interest rates tomorrow, investors will pay close attention to ECB President Christine Lagarde’s monetary policy statement and press conference for fresh clues on the outlook for interest rates. interest.
• Lagarde’s comments are expected to be moderate as price pressures in the Eurozone appear to be under control and fears of an economic slowdown have grown significantly. According to preliminary estimates, the Eurozone Harmonized Index of Consumer Prices (HICP) slowed to 1.8% in September. Meanwhile, the second estimate of the monthly Consumer Price Index (CPI) (EU Standard) in France and Italy has shown that price pressures were slower than initially expected.
• Rising speculation over former US President Donald Trump’s victory in the US presidential election has also raised concerns about the European Union’s (EU) export prospects. Trump’s victory is expected to result in increased tariffs on automotive imports to the US, which could affect exports from the old continent and lead to further weakness in economic growth.

Technical Analysis: EUR/USD falters near 200-day EMA

EUR/USD trades cautiously below the key resistance of 1.0900 in European trading hours. The major currency pair weakened after a breakout of the Double Top formation on a daily time frame on October 4, resulting in a bearish reversal.

The shared currency pair is teetering near the 200-day exponential moving average (EMA) around 1.0900. A bearish crossover, represented by the 20-day and 50-day EMAs near 1.1020, suggests more weakness ahead.

The 14-day Relative Strength Index (RSI) falls near 30.00, indicating strong bearish momentum.

To the downside, the main pair could find support near the ascending trend line at 1.0750, which is drawn from the October 3 low around 1.0450. Meanwhile, the psychological figure of 1.1000 will be the key resistance for the pair.