- Data on Thursday revealed business activity in the euro zone remained weak in October.
- The market has fully priced in the ECB's 25bp rate cut in December.
- The US PMI figures indicate the state of business activity.
The outlook for EUR/USD tilts south despite a short-term rebound as data reveals weakness in business activity in the euro area. However, the currency pair rose slightly as the dollar weakened due to uncertainty surrounding the upcoming US presidential election.
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Data on Thursday revealed business activity in the euro zone remained weak in October. The overall PMI was 49.7 compared to the expected 49.8. A number below 50 indicates a contraction in the economy and weak economic demand. As a result, market participants are increasingly betting on the European Central Bank's further interest rate cuts in December. The market has fully priced in a 25bp rate cut in December.
But the ECB's Christine Lagarde on Wednesday stressed caution in making policy decisions. But other policymakers have expressed more dovish rhetoric. Nevertheless, the euro recovered on Thursday, while the dollar fell from recent highs ahead of the US presidential election.
The dollar has been rising for weeks as traders bet on President Trump's victory and a rise in inflation. However, a recent Reuters poll shows Kamala Harris in the lead, and a close race is expected. The uncertainty is causing some investors to pause and lock in profits before the election.
Meanwhile, market participants are waiting for further hints about the future of Fed policy. U.S. jobless claims indicate whether demand in the labor market remains strong, which could reduce the prospects for a November interest rate cut. On the other hand, PMI numbers indicate the state of business activities.
The Fed's policy outlook has shifted to a more moderate one. Moreover, policymakers are taking a more hawkish tone. As a result, the market sees a 29% chance that the central bank will cut interest rates just once more this year.
Today’s major events for EUR/USD
- Applying for unemployment insurance
- Flash Manufacturing PMI
- Flash Service PMI
EUR/USD technical outlook: bears lead below 30-SMA
On the technical side, the EUR/USD price has rebounded and retested the key level at 1.0801. However, the downtrend remains intact as the price made recent lows. Moreover, it has fallen below the 30-SMA and the RSI is below 50, trading in bearish territory.
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Therefore, even if the uptrend continues, there could be a pause at the 30-SMA resistance. Here, the price may fall above the 1.0750 level to continue the downtrend. However, if the price breaks above the SMA, the trend can reverse to the upside.
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