The EUR/USD pair continues to experience significant declines, dropping over 3.5% from its late September peak as bearish momentum intensifies. The downward trend follows the European Central Bank (ECB)‘s decision to implement a quarter-point rate cut on Thursday. The ECB trimmed its Deposit Facility Rate and Main Refinancing Operations Rate by 25 basis points, bringing the rates down to 3.25% and 3.4%, respectively. The move aligns with market expectations but has failed to halt the euro's decline.
Adding to the pressure on the euro, Europe’s Harmonized Index of Consumer Prices (HICP) for September came in lower than expected at 1.7% year-over-year, falling short of the anticipated 1.8%. This inflationary weakness further weighs on the euro as the region grapples with concerns of a slowing economy. The upcoming EU Leadership Summit on Friday offers little hope of reversing this sentiment, as economic indicators point to a steeper slowdown ahead.
On the other side of the Atlantic, US Retail Sales data for September exceeded expectations, with a 0.4% month-over-month increase, compared to the prior 0.1% in August. Excluding automotive sales, retail sales grew 0.5%, solidifying the dollar's strength. Additionally, US Initial Jobless Claims came in lower than expected at 241,000, reinforcing the notion of a resilient US labor market.
Technically, EUR/USD has broken below key support levels, including the 50-day EMA at 1.0996 and the 200-day EMA at 1.0904, signaling strong bearish sentiment. Currently trading near 1.0828, the pair is approaching multi-week lows, with further declines possible if the 1.0800 support level is breached. The MACD indicator remains deeply in negative territory, suggesting bearish momentum could persist, potentially dragging the pair toward 1.0750 or even 1.0700.
To reverse the bearish outlook, the pair would need to recover above 1.0900, where the 200-day EMA resides, providing a potential level of relief for bullish traders. However, unless the euro gains support from upcoming economic developments, the path of least resistance remains to the downside.
