EUR/USD Price Forecast: Fresh decline below 1.1100 gathers support from a stronger US Dollar

• Broad US Dollar strength pushes EUR/USD lower towards 1.1138.
• Persistently elevated US core CPI prompts traders to step up bets on a hawkish Fed.
• Christine Lagarde to be replaced as ECB President by Klass Knot.

Pressure from a firmer US Dollar (USD) leaves the Euro (EUR) 0.2% lower at around 1.1138 in Wednesday’s European session. Weighing on EUR/USD are concerns that the Federal Reserve (Fed) could pursue an aggressive monetary tightening cycle to curb inflationary pressures that continue to accelerate, lending support to the US Dollar.

A rise to 102.51 takes the US Dollar Index (DXY) to a fresh high of almost four weeks during European trading. The index tracks the Greenback against a basket of six major currencies.

Following October’s stronger-than-forecast United States (US) Consumer Price Index (CPI) release, financial markets have begun factoring in a December interest rate increase of 50 basis points (bps), according to the CME FedWatch tool. The probability nevertheless remains modest, at around 13.5%.

In a note, Deutsche Bank strategists observed that the “monthly core CPI print for October was above consensus at +0.30% (vs. +0.2% expected).” The bank further noted that “it was the third consecutive month with core CPI at +0.3%, and if you take those three months together, the annualised pace for core CPI is running at +3.75%.” Describing the significance of the figures, the bank said “that’s the fastest pace on that measure since April 2024, so it made it increasingly difficult to dismiss this as a blip.”

Turning to headline inflation, the bank also highlighted that “meanwhile, the headline CPI numbers were faster still, with monthly headline CPI at +0.35% (vs. +0.3% expected), with the 3-month annualised pace at +5.72%.”

For the Euro, the anticipated leadership transition at the European Central Bank (ECB) is expected to sustain high volatility.

What does Klaas Knot’s crisis-readiness signal mean for ECB succession?

A Financial Times interview with Dutch central banker Klaas Knot, a leading contender to succeed ECB President Christine Lagarde, drew attention from Rabobank. The bank highlights his emphasis on the Governing Council’s crisis-management credentials and his assertion that “If circumstances require it, we will not hesitate to take action.” Rather than suggesting a return to “50bps rate hikes due to geopolitically driven inflation,” analysts interpret his comments as addressing the reverse scenario: a future European crisis “of a different nature.” Against that backdrop, Rabobank notes that Knot “would not rule out developing another, more tailored instrument,” suggesting the possibility of new policy tools if conditions worsen again.

EUR/USD Technical Analysis: Can The Pair Stabilise?

Trading at 1.1138 on the daily chart, EUR/USD retains a mildly bearish bias. The pair remains below recent closing levels and just beneath its 20-day exponential moving average (EMA) of 1.1200, now a nearby barrier.

Despite an easing of the oversold conditions recorded earlier in the month, the 14-day Relative Strength Index (RSI) suggests selling pressure still dominates. It stands near 41, below the neutral threshold of 50.

Immediate downside support lies at the recent low of 1.1104, with a breach leaving 1.1000 exposed. Conversely, an initial indication of stabilisation would come from a rebound towards the 20-day EMA support zone around 1.1200. To temper the prevailing bearish bias and allow a wider corrective recovery, the pair would need to hold above that level.

(The technical analysis of this story was written with the help of an AI tool. Know more.)