The EUR/USD pair is struggling to stay above 1.0950, as the US Federal Reserve is expected to take a gradual approach to cutting interest rates. Strong demand in the US labor market, along with higher wage growth in September, has strengthened the US Dollar, keeping the Euro on the defensive. Additionally, uncertainty around the Euro’s future is growing, with speculation that the European Central Bank (ECB) might cut rates again in its meeting on October 17.
The anticipation of another dovish move by the ECB is driven by concerns that inflation in the Eurozone could settle below the bank’s 2% target. In September, the Eurozone’s Harmonized Index of Consumer Prices (HICP) fell more than expected, dropping to 1.8%. Meanwhile, Germany, the Eurozone’s economic powerhouse, continues to show signs of weakness, with soft demand weighing on growth. Germany’s economy is predicted to shrink by 0.2% this year, according to a report by the Ministry for Economic Affairs, led by Robert Habeck of the Green Party.
Over the weekend, François Villeroy de Galhau, an ECB policymaker and head of the French Central Bank, backed the idea of another rate cut, emphasizing the need to avoid keeping monetary policy too tight for too long. He mentioned that while the risk in recent years had been overshooting the 2% inflation target, the current challenge lies in the risk of falling short due to weak growth.
On the data front, Eurozone retail sales grew in August but fell short of expectations. Sales rose by 0.8% annually after a contraction in July, though economists had predicted a 1% rise. Month-over-month sales increased by 0.2%, as expected.
In the US, strong labor market data from Friday kept the US Dollar elevated, pushing the EUR/USD pair down. The US added 254,000 jobs in September, much higher than the expected 140,000, and revised up August’s figures. Unemployment also fell to 4.1%, slightly better than forecasts. This positive data led traders to reconsider their expectations for a large Fed rate cut in November. With wage growth also beating expectations—up 4.0% year-over-year—fears of persistent inflation remain. Investors are now eagerly awaiting the release of the US Consumer Price Index (CPI) for September, due on Thursday, for more clues on the Fed’s next move.
Technical Outlook : The EUR/USD pair is struggling to hold near key support at 1.0950, after breaking through a key level at 1.1000. The Relative Strength Index (RSI) has dropped below 40, indicating building bearish momentum. The pair may find support around 1.0900, with resistance levels at 1.1075 and 1.1200 likely to limit any upside.
