EUR/USD slips lower on growing pessimism on European economy, Fed tighter, USD haven flows

• EUR/USD is lower on Thursday as the euro weakens on a worsening growth outlook.
• A stronger US dollar is accelerating its rise amid bearish market bets on another aggressive rate cut from the Fed.
• USD strengthens further on refugee flows as conflict in the Middle East intensifies.

EUR/USD is trading in the 1.1030s on Thursday, down about a tenth of a percent on the day, as geopolitical risks boost demand for the safe-haven U.S. dollar (USD), while the euro (EUR) weakens amid an outlook economic bleak for the old continent.

EUR/USD slips on tighter Fed haven flows

EUR/USD opens on the back foot on Thursday after closing lower for three straight days. A single euro will now buy almost two cents less than it did at the beginning of the week.

The euro weakens after weaker-than-expected inflation data for September pushed the eurozone’s official headline inflation rate to 1.8%, the first time it has fallen below the European Central Bank’s (ECB) target of 2.0% in 39 Monday. The data increases the chances that the ECB will cut interest rates more aggressively, which in turn would be negative for the euro as it discourages foreign capital inflows.

In the US, by contrast, market bets are falling that the US Federal Reserve (Fed) will continue its “jumbo” cut of 50 basis points (0.50%) with an equal cut in November, and this is supporting the US dollar .

Strong US jobs data helps reassure investors that the US economy will not experience a hard landing. JOLTS job postings rose to 8.04 million in August from 7.71 million in July, and the ADP Employment Change – an estimate of private payrolls growth – came in at 142,000 in September, beating 103,000 and expectations of 120,000 from the previous month. Markets now await the most important US labor report, the Nonfarm Payrolls (NFP), scheduled for release on Friday.

Rising geopolitical tensions in the Middle East further support the US dollar as the greenback is seen as a safe haven in times of crisis, further weighing on the EUR/USD pair. Israel has stepped up its multi-front war against Iran and its proxies – Hamas, Hezbollah and Yemen’s Houthis. After Iran’s bombing of Israel on Tuesday, fears that Israel will retaliate with targeted attacks on Iranian oil facilities and possibly even nuclear development sites.

Europe faces an uncertain future

The Euro is suffering due to pessimistic long-term economic growth prospects for Europe. On Wednesday, these concerns crystallized in a speech that President Emmanuel Macron of France gave in Berlin. Macron warned of existential risks for Europe if it fails to invest in its future to remain competitive in a rapidly changing new world order led by the United States and China.

Europe, he said, faces “an existential risk” if it does not increase investment in innovation and artificial intelligence (AI), impose tariffs to ensure a level playing field with subsidized competitors, simplify complex regulations and member states integrated into a capital market. and the level of government. His speech echoed proposals made by former Italian Prime Minister Mario Draghi in his recent report on EU competitiveness, which was equally pessimistic in its conclusions.

Technical Analysis: EUR/USD continues to lower in the long-term range

EUR/USD continues to develop a bearish rate in a broad multi-year range, capped by a ceiling at around 1.1200 and a level around 1.0500.

EUR/USD daily chart

The pair is in a sideways trend in all key timeframes (short, medium and long term) and since it is a principle of technical analysis that “the trend is your friend”, the odds favor the continuation of this sideways trend, suggesting an extension of the downward leg that is currently unfolding.

Prices are currently trying to break below the support provided by the 50-day red moving average (SMA) at 1.1044. A close below the 50-day SMA would help confirm more weakness. A close below the trend line and swing low of 11 September at 1.1002 would provide further bearish confirmation. The downside target for the currently unfolding leg is 1.0875, the 200-day SMA, followed by 1.0777 (August 1 low) and 1.0600 in a particularly bearish scenario.

Momentum, as measured by the moving average convergence divergence (MACD), is relatively bearish as the blue MACD line has crossed below the red signal line, suggesting more evidence that the pair could be vulnerable to further weakness.