FX.co ★ EUR/USD

For an entire month, the EUR/USD pair remained within a range of 1.1114 to 1.1269. The release of the U.S. inflation report for October on Tuesday triggered a fresh wave of bearish selling pressure. This downward momentum persisted through Wednesday and Thursday, pushing the euro below the lower bound of its established range toward multi-month lows near 1.1050. While it is premature to declare an end to this prolonged period of sideways trading—as the price could still see a "liquidity sweep" below previous lows before potentially reversing upward—the price action over the past five days points to an unfavorable near-term outlook for the euro. Notably, the mid-week decline occurred in the absence of any major macroeconomic catalysts favoring the U.S. dollar; given that the dollar has already been appreciating for three months, this sustained selling appears somewhat unusual. Market participants continue to actively price in expectations for future monetary policy tightening by the Federal Reserve—even though the possibility of a December interest rate hike has already been repeatedly factored into asset valuations. With the yield on the 10-year U.S. Treasury note approaching 5.00%, and European sovereign bond yields remaining relatively weaker, the transatlantic yield differential has widened. Over the past two months, there has been a notable divergence between fundamental developments and the movements of the EUR/USD exchange rate. Several major economic and political developments—which should have theoretically benefited the euro—have failed to generate any significant upward momentum. The resounding defeat of the Republicans in last week’s U.S. midterm elections has resulted in a divided Congress; the ensuing legislative gridlock between Democrats and Republicans is expected to delay key fiscal and policy decisions. Meanwhile, consumer price inflation in the eurozone has accelerated to 4.0%, reinforcing the need for further monetary tightening by the European Central Bank (ECB). Logically, if the market has already priced in interest rate hikes from the Federal Open Market Committee (FOMC), it should also account for similar tightening expectations from the ECB. Although the Federal Reserve’s hawkish rhetoric provided strong support for the dollar over the past quarter, its actual policy stance is no more aggressive than that of its European counterparts. The market widely anticipates that the ECB will raise interest rates for the third time this year in December, while the Bank of England has recently initiated a monetary tightening cycle that could ultimately include up to four rounds of rate hikes. The British pound has responded positively to the actions of major central banks, whereas the euro’s reaction has been unusually tepid—a trend largely driven by regional economic weakness and political pressures. From a technical perspective, there are currently no clear signs that the downward trend has exhausted its momentum. The resistance level identified as "Imbalance 24" remains in place, although prices have not retested this level to generate a new sell signal. For a genuine recovery to occur, buyers must decisively break through and move beyond the "Imbalance 24" level, while establishing a robust bullish market structure on a longer timeframe—a feat that would require a strong upward move, which has yet to materialize. A previous liquidity sweep beyond the 1.1270 level, combined with strong U.S. labor market data and a high Consumer Price Index (CPI) reading released on Tuesday, has reinforced the sellers' control over the market. Bulls are currently hoping for a price decline below recent lows to complete another liquidity sweep; however, this carries the risk of creating a new bearish imbalance zone. While the Euro retains strong fundamental support due to its long-term resilience, traders appear unwilling to short the U.S. Dollar under any circumstances. Market focus has now shifted toward economic data scheduled for Friday, November 13: Eurozone third-quarter GDP figures are set for release at 10:00 UTC, followed by the critical U.S. Producer Price Index (PPI) report for October at 13:30 UTC. This report will play a pivotal role in determining whether the Federal Reserve opts for a 25 or 50 basis-point interest rate hike in December. In the long term—despite the EUR/USD pair having maintained an upward trend for four years and currently undergoing a price correction that has persisted for a year—short-term buying opportunities remain extremely limited, centering primarily around two key historical lows at 1.1066 and 1.1105. Meanwhile, bolstered by the "Imbalance 24" indicator and recent liquidity injections, sellers continue to hold a structural advantage.