FX.co ★ EUR/USD

The euro fell to the 1.1080 level against the US dollar at the start of European trading on Thursday. This decline is primarily attributed to the European Central Bank’s (ECB) cautious policy, combined with the strength of the US dollar. Regarding inflation expectations, ECB Chief Economist Philip Lane noted that, while energy prices may slow down, future interest rate decisions will depend on the extent to which previous spikes in fuel costs affect wages and consumer prices more broadly. According to the FXS Speechtracker, Lane received a score of 6.2 (out of 10)—consistent with his historical average—indicating a generally neutral stance with a slight hawkish tilt. He emphasized the importance of consensus within the ECB Governing Council and set a high bar for providing clear forward guidance. This reflects the ECB’s preference to avoid pre-committing to a fixed interest rate path, while maintaining monetary policy flexibility through tools designed to prevent disorderly fragmentation in the bond market. Furthermore, Lane views "core inflation" as a reliable indicator of medium-term price pressures, while also accounting for the potential "second-round effects" stemming from wages. This means that even if headline inflation figures decline, core inflation may remain high, reinforcing the European Central Bank’s cautious stance regarding monetary easing. Meanwhile, on the other side of the Atlantic, there is a growing conviction in the markets that the Federal Reserve will adopt a more hawkish monetary policy—an expectation that continues to dominate price-setting dynamics in the foreign exchange market. Following Tuesday’s U.S. Consumer Price Index (CPI) release, which came in higher than anticipated, and hawkish remarks from Federal Reserve Governor Christopher Waller—who expressed support for a 25-basis-point interest rate hike in December and indicated he would consider a larger, 50-basis-point increase should inflation data worsen—traders quickly adjusted their interest rate expectations upward. Currently, market focus has shifted to Friday’s release of the U.S. Producer Price Index (PPI) for October, which will help confirm the trend in wholesale prices. The market generally expects the headline PPI to rise by 6.6% year-on-year in October, accelerating from 6.3% in September, while the core PPI is projected to remain at an elevated level of 5.0% year-on-year. If wholesale inflation data comes in higher than expected, it will reinforce market expectations for a significant interest rate hike by the Federal Reserve in December, while maintaining upward pressure on U.S. Treasury yields and the U.S. dollar exchange rate. Strategists at Rabobank noted that, while the market generally anticipates that both the Federal Reserve and the European Central Bank (ECB) will tighten monetary policy in December, the ECB’s willingness to continue raising interest rates beyond the end of the year may be quite limited. The bank pointed to signals from the most recent ECB press conference, which suggest that the ECB’s Governing Council is increasingly concerned about the economic growth outlook for the Eurozone. Consequently, Rabobank believes that the market has overestimated the scale of interest rate hikes the ECB is likely to implement. Furthermore, the bank emphasized that political uncertainty in Europe—particularly the potential impact on European cooperation should a far-right leader come to power in France—remains a structural headwind for the euro. As a result, the bank expects the EUR/USD exchange rate to weaken over the next three months, heading toward the 1.1000 level.

From a technical analysis perspective, the EUR/USD pair continues its downward trend; it remains below key moving averages and volatility indicators, maintaining a strong bearish bias. The 100-day simple moving average (SMA) is trending downward and remains well above the current spot exchange rate, reinforcing a bearish bias over the medium term. Meanwhile, the exchange rate is trading near or below the lower bound of the 20-day Bollinger Band, signaling persistent selling pressure as it hovers near recent lows. Although the 14-day Relative Strength Index (RSI) has ticked up slightly to 36, it remains well below the neutral level of 50, suggesting only a marginal improvement in momentum within an otherwise weak technical environment. On the upside, immediate resistance lies in the 1.1090–1.1100 range, which coincides with the lower Bollinger Band and a psychological level. Should the exchange rate successfully break through this resistance, it would likely target the 1.1180 level (the middle Bollinger Band), followed by 1.1275 (the upper Bollinger Band) and, subsequently, 1.1405 (the 100-day SMA). Conversely, on the downside, the psychological level of 1.1000 serves as a key support. A decisive break below this level on the daily chart could lead to a test of previous lows—specifically 1.0951, reached on May 12, 2025, and 1.0733, reached on May 27, 2025.