Daily Technical Analysis EUR/USD: The Pair Extends Decline Ahead of ECB Rate Decision

The EUR/USD pair continued its bearish trend on Tuesday, dropping about one-fifth of a percent and sliding below the 200-day Exponential Moving Average (EMA). The price closed below the 1.0900 level for the first time since early August. The pair is now down nearly 3% from its late September highs, which were just above the 1.1200 level.

European banks have generally reported negative impacts following the European Central Bank’s (ECB) summer rate cut. While lending standards have remained broadly unchanged and even eased for household lending, consumer credit conditions remain tight. The rebound in demand for housing loans is based solely on the expectation of further rate cuts, which means consumers are over-leveraged in the short term. Additionally, EU banks’ net interest income, due to the ECB’s policy rate decisions, has turned negative for the first time since 2022.

At a broad level, the ECB is expected to announce a quarter-point cut to the main deposit rate in its next decision on Thursday. Markets widely anticipate a 25-basis-point rate cut, with the ECB’s main refinancing rate also expected to be reduced by nearly 25 basis points to around 3.4%, down from 3.65%.

In addition to the ECB’s decision, Thursday’s session will include the release of U.S. retail sales data for September. U.S. retail sales are expected to show a 0.3% month-over-month increase, up from 0.1% in the previous month.

However, despite the euro’s weakness against the U.S. dollar and the anticipated downward momentum, it’s worth noting that the U.S. dollar has recently been losing steam. The U.S. side of the equation, which has undoubtedly been the dominant force in the currency pair’s decline, should not be overlooked. In fact, the U.S. dollar rebounded in October as markets adjusted their expectations for interest rate cuts in 2024, following stronger-than-expected U.S. economic data. Clearly, the U.S. economy does not require an urgent pace of rate cuts. Moreover, the delay in rate cuts has boosted U.S. bond yields and strengthened the dollar.

EUR/USD Daily Technical Analysis for October 16th

The EUR/USD exchange rate is expected to test the 200-day moving average as sellers anticipate Thursday’s ECB rate cut. The expectation of further ECB action has pushed the EUR/USD pair below the 1.10 level, with the next key target being the 200-day moving average at 1.08736.

There is a high likelihood that this level will be tested sometime before the end of October. From this expected support level, technical indicators could begin to move toward oversold territory. On the daily chart, the most significant support will be found at the 1.0775 level. Conversely, within the same time frame, the current bearish channel would not be broken without a return to the vicinity of the 1.1070 resistance level.