Daily Technical Analysis EUR/USD: Below 1.0800 as Fed Tightening Looms

The EUR/USD remains steady at 1.0790 after posting losses in the previous session. However, the pair could be impacted by a stronger dollar, as recent positive U.S. economic data has bolstered expectations for a less dovish Fed approach in November.

On Friday, the Michigan Consumer Sentiment Index rose to 70.5 in October, up from 68.9 and beating the estimate of 69.0. Additionally, Durable Goods Orders increased by about 0.5%. Durable Goods Orders declined by 0.8% month-over-month in September, a smaller drop than the estimated 1.0% decrease.

Furthermore, increased uncertainty surrounding the Middle East conflict may have reinforced the dollar’s appeal as a safe-haven asset amid market volatility. Israel’s targeted strike against Iran early Saturday, coordinated with Washington and limited to missile sites and anti-aircraft defenses, was more muted than anticipated.

The dollar is also buoyed by uncertainty surrounding the upcoming U.S. presidential election. Republican allies of former President Donald Trump recently faced at least 10 court defeats in battleground states, which could influence the outcome of the Nov. 5 election.

European Central Bank (ECB) Governing Council member Klaas Knot emphasized on Saturday the importance of “keeping all options open” to manage risks to growth and inflation. “Maintaining full optionality would serve as a hedge against potential risks to the growth and inflation outlook,” Knot stated, adding, “Our meeting-by-meeting and data-dependent approach has served us well,” according to Reuters.

The euro market has lost ground for most of the past week, though support has started to emerge around the 1.0800 level. At this stage, the market appears to show signs of a potential rebound, which could attract short sellers, especially as rising U.S. interest rates continue to drive demand for the dollar.

From a technical perspective, on the daily chart, EUR/USD seems to be correcting oversold conditions. The pair has halted below resistance at 1.0865, near the 23.6% Fibonacci retracement of the recent decline between 1.1208 and 1.0760. A more critical level is the 38.2% retracement at 1.0930.

Meanwhile, technical indicators are flat, positioned below their midlines, indicating the absence of strong buying pressure and suggesting oversold conditions. Additionally, the significantly bearish 20-day SMA is below a flat 100-day SMA, which signals sellers’ control over the market.