1.1066 area offers temporary support for Euro against US Dollar; outlook stays uncertain

1.1066 marks a fresh 18-month low for the Euro against the US Dollar. Modest buying emerges after the slide.
Strong US CPI data keeps Fed expectations shifting in a hawkish direction, supporting further US Dollar strength.
December is likely to mark the end of the ECB’s monetary tightening cycle.

1.1066 marked a fresh 18-month intraday low for the Euro (EUR) against the US Dollar (USD). Support has since emerged, leaving EUR/USD almost unchanged at around 1.1090 in European trading. Thursday’s modest recovery comes as the US Dollar surrenders part of its earlier advance.

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

After reaching a fresh 18-month intraday high of 103.08, the US Dollar Index (DXY) eases towards 102.90 in the European session. The index tracks the Greenback against six major currencies.

Rising inflation in the United States (US) has prompted traders to price in an even more hawkish Federal Reserve (Fed) stance, keeping the US Dollar’s outlook firm.

28.5bps: December Fed pricing shifts higher after CPI

Despite the closure of US Treasury cash markets, Deutsche Bank analysts say the “hawkish implications from the CPI print continued to be felt in futures pricing yesterday.” On the December meeting, they note that “Fed funds futures continued to shift in a hawkish direction, with pricing for the December meeting edging up to 28.5bps.” The repricing also extends further along the curve. Deutsche Bank reports that “expectations for the September 2027 meeting surged another +7bps to 82bps, although that’s edged back down to 77bps overnight,” highlighting the substantial adjustment to the expected Fed policy path following the CPI release.

Friday’s release of October Producer Price Index (PPI) data will provide the next test of the strength of US inflation.

Doubts over the durability of the European Central Bank’s (ECB) tightening cycle are meanwhile weighing broadly on the Euro. Following two interest rate increases this year, the ECB is expected to raise rates once more at its December meeting. Growing economic uncertainty, however, means that increase is expected to be the last.

December in focus as Eurozone growth concerns limit ECB tightening expectations

A more cautious approach to further rate increases is likely after December, according to Rabobank strategists, who warn that the ECB could be approaching the end of its current tightening cycle. They note that “the ECB, however, could prove to be reluctant to hike rates beyond December.” Supporting that assessment, they add that “the last ECB press conference suggested that the Governing Council was becoming increasingly concerned about the growth outlook,” reinforcing expectations of greater caution once the December increase is completed.

1.1185 EMA caps EUR/USD: Technical Analysis

At 1.1091 on the daily chart, EUR/USD retains a bearish short-term bias below its 20-day Exponential Moving Average (EMA) of 1.1185. This dynamic resistance continues to limit gains. A Relative Strength Index (RSI) reading of 37 remains bearish without reaching oversold territory, suggesting sustained selling pressure rather than exhaustion.

A daily close above the 20-day EMA, near 1.1185, is needed to soften the bearish outlook, with that level providing immediate resistance. Below this moving average, rebounds are likely to attract selling. The pair therefore remains exposed to fresh lows and uncharted support levels on the chart.

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

Euro: Key questions

20 EU countries: Where is the Euro used?

Used by the 20 European Union countries within the Eurozone, the Euro ranks second only to the US Dollar in global currency trading. Its share of all foreign exchange transactions reached 31% in 2022, with daily turnover averaging more than $2.2 trillion. An estimated 30% of all transactions involve EUR/USD, making it the world’s most actively traded currency pair. Next are EUR/JPY (4%), EUR/GBP (3%) and EUR/AUD (2%).

ECB policy: How does it affect the Euro?

Based in Frankfurt, Germany, the European Central Bank (ECB) serves as the Eurozone’s reserve bank, setting interest rates and directing monetary policy. Maintaining price stability is its main mandate, whether through inflation control or growth stimulus. Interest rate increases and cuts are its principal policy tools. The Euro usually benefits when rates are relatively high, or expected to rise; the reverse also applies. Monetary policy is decided by the ECB Governing Council at eight meetings each year. The decision-makers comprise the heads of Eurozone national banks and six permanent members, among them ECB President Christine Lagarde.

2% inflation target: Why does it matter for the Euro?

Measured through the Harmonised Index of Consumer Prices (HICP), Eurozone inflation is a key economic indicator for the Euro. An inflation reading above expectations, particularly one exceeding the ECB’s 2% target, requires the central bank to increase interest rates to regain control of prices. Higher interest rates relative to those elsewhere generally support the Euro by making the region a more attractive destination for global investors’ funds.

Economic indicators: What drives the Euro’s response?

The Euro can react to data releases that reveal the economy’s condition. GDP, Manufacturing and Services PMIs, employment figures and consumer sentiment surveys all help shape the single currency’s direction. Economic strength supports the Euro by drawing in foreign investment and potentially prompting the ECB to raise interest rates, which would directly strengthen the currency. Weak economic readings, by contrast, are likely to weigh on the Euro. Germany, France, Italy and Spain, the euro area’s four largest economies, together represent 75% of the Eurozone economy. Their economic releases therefore carry particular weight.

Trade Balance: Why does it matter for the Euro?

The Trade Balance is another important release for the Euro, showing the difference between a country’s export earnings and import spending over a specified period. Strong overseas demand for a country’s exports creates additional demand for its currency as foreign buyers seek to purchase those goods, lifting the currency’s value. A positive net Trade Balance consequently supports a currency, while a negative balance has the opposite effect.