Euro finds temporary support near 1.1066 against US Dollar, outlook remains uncertain

Euro attracts slight bids against the US Dollar after sliding to a fresh 18-month low near 1.1066.
Fed’s hawkish repricing after strong US CPI data continues to strengthen the US Dollar.
The ECB is unlikely to extend its monetary tightening cycle beyond December.

The Euro (EUR) finds cushion after posting a fresh 18-month low near 1.1066 against the US Dollar (USD) during the day, trading almost flat at around 1.1090 in the European trade. The EUR/USD pair rebounds slightly on Thursday as the US Dollar gives back some of its early gains.

TMGM Analysis: Financial Market News, Economic Calendar & Market Insights

In European session, the US Dollar Index (DXY), which gauges the Greenback’s value against six major currencies, retreats to near 102.90 after posting a fresh 18-month high at 103.08 during the day.

The outlook of the US Dollar remains firm as traders have raised hawkish Federal Reserve (Fed) expectations further in the wake of rising United States (US) inflation.

Fed funds futures extend hawkish repricing after CPI

Analysts at Deutsche Bank note that, even with US Treasury cash markets closed, the “hawkish implications from the CPI print continued to be felt in futures pricing yesterday.” They highlight that “Fed funds futures continued to shift in a hawkish direction, with pricing for the December meeting edging up to 28.5bps.” Further along the curve, Deutsche Bank points out that “expectations for the September 2027 meeting surged another +7bps to 82bps, although that’s edged back down to 77bps overnight,” underscoring how the CPI release has materially repriced the path of Fed policy.

Going forward, the US inflation strength would be tested by the Producer Price Index (PPI) data for October, which is scheduled for Friday.

Meanwhile, the Euro is broadly under pressure as market experts doubt that the monetary tightening cycle by the European Central Bank (ECB) will sustain in the long run. The ECB has raised interest rates twice this year and is expected to deliver one more in the December meeting, but that is expected to be its last one due to growing economic uncertainty.

Eurozone growth worries temper expectations for further ECB tightening

Strategists at Rabobank caution that the ECB may be nearing the end of its current tightening cycle, noting that “the ECB, however, could prove to be reluctant to hike rates beyond December.” They point out that “the last ECB press conference suggested that the Governing Council was becoming increasingly concerned about the growth outlook,” reinforcing the view that policymakers are likely to adopt a more cautious stance on further rate increases once the December move is out of the way.

EUR/USD Technical Analysis

In the daily chart, EUR/USD trades at 1.1091, keeping a bearish near-term bias as spot holds below the 20-day Exponential Moving Average (EMA) at 1.1185. The pair remains capped by this dynamic barrier, while the Relative Strength Index (RSI) at 37 stays in bearish territory but above oversold, hinting at persistent downside pressure rather than exhaustion.

On the topside, immediate resistance is located at the 20-day EMA around 1.1185, and a daily close above this level would be needed to ease the current bearish tone. As long as EUR/USD remains under this moving average, rallies are likely to be sold, leaving the pair vulnerable to fresh lows into uncharted support levels on the chart.

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

Euro FAQs

What is the Euro?

The Euro is the currency for the 20 European Union countries that belong to the Eurozone. It is the second most heavily traded currency in the world behind the US Dollar. In 2022, it accounted for 31% of all foreign exchange transactions, with an average daily turnover of over $2.2 trillion a day. EUR/USD is the most heavily traded currency pair in the world, accounting for an estimated 30% off all transactions, followed by EUR/JPY (4%), EUR/GBP (3%) and EUR/AUD (2%).

What is the ECB and how does it impact the Euro?

The European Central Bank (ECB) in Frankfurt, Germany, is the reserve bank for the Eurozone. The ECB sets interest rates and manages monetary policy. The ECB’s primary mandate is to maintain price stability, which means either controlling inflation or stimulating growth. Its primary tool is the raising or lowering of interest rates. Relatively high interest rates – or the expectation of higher rates – will usually benefit the Euro and vice versa. The ECB Governing Council makes monetary policy decisions at meetings held eight times a year. Decisions are made by heads of the Eurozone national banks and six permanent members, including the President of the ECB, Christine Lagarde.

How does inflation data impact the value of the Euro?

Eurozone inflation data, measured by the Harmonized Index of Consumer Prices (HICP), is an important econometric for the Euro. If inflation rises more than expected, especially if above the ECB’s 2% target, it obliges the ECB to raise interest rates to bring it back under control. Relatively high interest rates compared to its counterparts will usually benefit the Euro, as it makes the region more attractive as a place for global investors to park their money.

How does economic data influence the value of the Euro?

Data releases gauge the health of the economy and can impact on the Euro. Indicators such as GDP, Manufacturing and Services PMIs, employment, and consumer sentiment surveys can all influence the direction of the single currency. A strong economy is good for the Euro. Not only does it attract more foreign investment but it may encourage the ECB to put up interest rates, which will directly strengthen the Euro. Otherwise, if economic data is weak, the Euro is likely to fall. Economic data for the four largest economies in the euro area (Germany, France, Italy and Spain) are especially significant, as they account for 75% of the Eurozone’s economy.

How does the Trade Balance impact the Euro?

Another significant data release for the Euro is the Trade Balance. This indicator measures the difference between what a country earns from its exports and what it spends on imports over a given period. If a country produces highly sought after exports then its currency will gain in value purely from the extra demand created from foreign buyers seeking to purchase these goods. Therefore, a positive net Trade Balance strengthens a currency and vice versa for a negative balance.