EUR/USD Price Analysis: Markets brace for more ECB rate cuts

• Economists believe the European Central Bank will cut rates in October and December.

• Inflation in the euro area fell below 2% in September.

• Traders will look at the minutes of the Fed meeting.

EUR/USD price analysis points to a continued decline as market participants price in more European Central Bank rate cuts this year. At the same time, the dollar held off after hitting a seven-week high on a robust US labor market report.

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Most economists polled by Reuters on Tuesday believe the European Central Bank will cut rates in October and December. During both meetings, the central bank could implement cuts of 25 basis points.

The new forecast is a change from a month ago, when they expected another rate cut in December. In particular, inflation in the euro zone fell below 2% in September, giving policy makers confidence that the fight is almost over. As a result, ECB President Christine Lagarde has hinted at another interest rate cut in October. Lower borrowing costs will hurt the euro, especially as the US economy remains resilient, boosting the dollar.

On Wednesday, the dollar moved sideways after climbing to new highs. The recent rally followed a better-than-expected nonfarm payrolls report. Initially, the Fed implemented a significant interest rate cut, fearing the deterioration of the labor market. Consequently, traders were expecting a similar rate cut in November and this weighed on the dollar.

However, monthly employment figures showed robust job growth and a lower unemployment rate. As a result, expectations have changed to reflect an 86% chance of a 25bps rate cut in November.

Later in the day, traders will look at the minutes of the Fed meeting, which could contain clues about future moves. In addition, Thursday’s US CPI report will show whether the central bank is winning its fight against inflation.

Key EUR/USD events today

EUR/USD Technical Analysis: Bears looking for new lows

Technically, EUR/USD is challenging the 1.0950 support level for the second time. It is trading well below the 30-SMA with RSI near the oversold region, supporting a bearish trend.

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Bears recently broke below the 1.1000 support level with a solid candle. The price then pulled back to retest the level and is now looking for new lows. However, the RSI made a bullish divergence, indicating bearish momentum is waning. Therefore, EUR/USD could recover if the bears do not regain their momentum.

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