EUR/USD Daily Forecast: Bearish Below $1.1084 as ECB Eyes 25 bps Rate Cut

The EUR/USD pair continues to struggle, trading around $1.10660 as investors prepare for the European Central Bank (ECB) policy decision on Thursday.

The ECB is widely expected to lower its key borrowing rates by 25 basis points (bps) for the second time this year as part of its ongoing policy-easing cycle. With Eurozone inflation falling to 2.2% in August—the lowest reading since July 2021—the ECB has room to act, particularly as price pressures ease and economic uncertainty rises.

Key Points:

• ECB expected to cut rates by 25 bps, driven by easing inflation and economic concerns.
• Sentix Investor Confidence declines to -15.4, signaling deepening pessimism in the Eurozone.
• EUR/USD bearish below $1.10836, with a target of $1.10323 and support at $1.1000.

The Eurozone’s poor economic outlook, driven by weak demand both domestically and abroad, is a significant concern. Germany, the region’s largest economy, has already entered a technical recession, with GDP contracting in the second quarter. The outlook for the third quarter remains equally grim, and ECB officials have signaled the need for further interest rate cuts throughout the year to prevent the economic situation from worsening. ECB board member Piero Cipollone recently stated, “There is a real risk that our stance could become too restrictive.”

EUR/USD – support in focus ahead of ECB Interest Rate Decisionhttps://t.co/Nd0rdFfdwd#EURUSD #Euro #forex #fx #forexmarket #ECB #InterestRates #Eurozone #trading pic.twitter.com/ltpLMjoEBE

— Minipip (@Minipip_UK) September 9, 2024

Eurozone Confidence and Market Sentiment Decline

Economic data paints a bleak picture for the Eurozone, with Sentix Investor Confidence dropping to -15.4 in September from -13.9 in August.

This worsening confidence reflects growing concern over the overall health of the Eurozone economy, particularly as Germany, the region’s powerhouse, continues to face significant economic headwinds.

As one of the Eurozone’s core economies, Germany’s slowdown is a major driver of the broader region’s declining investor sentiment. These economic conditions have placed additional pressure on the Euro, as the market awaits the ECB’s next steps.

The central bank’s focus on lowering borrowing costs underscores the significant challenges facing the Eurozone, and investors are increasingly wary of the EUR/USD pair, which remains under bearish pressure in the short term.

EUR/USD Technical Outlook: Bearish Bias Remains

From a technical perspective, the EUR/USD pair is trading below the pivot point at $1.1084, reflecting the market’s ongoing negative sentiment toward the Euro.

With the 50-day Exponential Moving Average (EMA) at $1.1082, the pair remains trapped in a bearish trend, unable to muster the strength needed for a significant breakout.

The Relative Strength Index (RSI) currently sits at 41, indicating that the market is leaning toward oversold conditions but without any strong signals of an imminent recovery.

EUR/USD dives below 1.1050 as the US Dollar strengthens on expectations that the Fed will opt for a small-size interest rate cut this month.
Investors await the US CPI on Wednesday for fresh guidance on interest rates.
The ECB is expected to cut interest rates this week.

— CentFx (@cent_fx) September 9, 2024

The immediate resistance for the pair stands at $1.1121, followed by higher resistance levels at $1.1154 and $1.1193.

Unless the Euro breaks through these key levels, selling pressure is likely to persist. Investors should be cautious, as broader economic concerns like Eurozone inflation and recession fears could further limit the Euro’s upside potential.

On the downside, support can be found at $1.1034, with significant defensive levels at $1.1000 and $1.0969. A breach of the $1.1034 mark could see the Euro fall quickly toward the psychologically important $1.1000 level.

Breaking below this could trigger deeper declines, exposing the pair to further downside risks.

Trading Strategy for EUR/USD

For traders, the recommended strategy is to sell positions below $1.10836, with a target profit of $1.10323.

Given the Euro’s ongoing weakness and the potential for further downside, it’s essential to place a stop-loss at $1.11141, just above immediate resistance, to mitigate upside risk.