EURUSD Keeps Testing 1.12 and Failing Despite October ECB Cut
Despite a weakening European economy and challenges in sustaining gains above the 1.12 level, EURUSD has shown surprising resilience.
Despite a weakening European economy and challenges in sustaining gains above the 1.12 level, the EURUSD pair has shown surprising resilience. The resistance zone around 1.12 has been tested multiple times, yet the pair has failed to break through, as the USD remains weak. The Chinese monetary and fiscal stimulus measures have been boosting risk sentiment, contributing to the pair’s bullish momentum. As China announces more stimulus measures, the euro could continue rising in the short term.
Eurozone: Weaker Inflation and Economy
Even with a declining GDP, the European Central Bank (ECB) is likely to take a cautious approach toward interest rate cuts. The ECB seems poised to wait until core inflation moves closer to its 2% target before acting. Recent economic data points to further weakening in the Eurozone. For example, France’s CPI inflation fell from 1.8% in August to 1.2% in September, while Spain’s CPI dropped from 2.3% to 1.5% in the same period. This overall trend has brought Eurozone inflation closer to the ECB’s target, but the weak PMI data and declining inflation are increasing pressure on the ECB to act.
EUR/USD Chart H4 – Heading to the Tip of the Triangle
Barclays expects a 25 basis point rate cut in October, with additional reductions at each ECB meeting until the refinance rate drops from 3.75% to 2%. The market has priced these cuts by mid-2024, but some analysts believe the reductions could happen sooner. While this outlook should weigh down the Euro, the currency has so far remained relatively strong.
Growing Calls for an ECB Rate Cut in October
On Friday, following weaker-than-expected US PCE inflation data, the EUR/USD tested the 1.12 level for the third time but failed to sustain gains above it, signaling a potential bearish trend. Despite the ongoing pressure, the pair’s ability to hold ground suggests continued market confidence, though the inability to break key resistance could point to a future decline.
EUR/USD Live Chart
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