Bearish View

• Sell the EUR/USD pair and set a take-profit at 1.0800.
• Add a stop-loss at 1.100.
• Timeline: 1-2 days.

Bullish View

• Set a buy-stop at 1.0900 and a take-profit at 1.100.
• Add a stop-loss at 1.0800.

(Click on image to enlarge)

The EUR/USD continued its plunge, reaching its lowest level in two years as the focus shifted to the upcoming European inflation data and European Central Bank (ECB) decision. It plunged to 1.0888, its lowest swing since August 2.

The euro’s plunge has coincided with the overall strong US dollar and recent weak European economic data.

The US dollar index (DXY) has soared from the year-to-date low of $100.2 to $103.2 after the country published strong economic data. Inflation fell to 2.4% in September, a smaller drop than expected.

The labor market also strengthened in September as the unemployment rate dropped to 4.1% and the economy created over 254k jobs.

Therefore, the market has reduced the Federal Reserve rate cut expectations. According to the CME FedWatch Tool, the bank will likely cut rates by 0.25% in its November 7 meeting. Before these numbers, the hope was a series of 0.50% rate cuts.

Therefore, US bond yields have jumped, with the 10-year rising to 4.14%, and the 30-year soaring to 4.45%.

The EUR/USD has also slumped because of the recent weak European economic data. Numbers released on Tuesday showed that the French annual inflation rate dropped to 1.1% in September. Similarly, in Spain, the figure dropped to 1.7%.

Analysts expect that Thursday’s inflation report will show that the headline CPI dropped below the bank’s 2.0% target.

More data showed that the bloc’s manufacturing and services PMIs have remained below the expansion zone of 50. Therefore, the bank will likely get more aggressive in its rate cut approach. The swap market predicts a 25 basis point cut followed by a similar figure in December.

The EUR/USD pair has also fallen because of the ongoing political environment in the US, with the odds of Trump winning rising. A Trump win would be positive for the greenback because of his trade wars.
 

EUR/USD Technical Analysis

The EUR/USD exchange rate has retreated in the past few days after it formed a double-top chart pattern last month. It has dropped below the neckline at 1.100, its lowest point on September 11.

(Click on image to enlarge)

The pair also slipped below the key support at 1.0980, its highest swing in March. Meanwhile, the Percentage Price Oscillator, a unique form of MACD, has dropped below the neutral point. The Relative Strength Index (RSI) has tilted downwards and is approaching the oversold level.

Therefore, the pair will likely continue falling as sellers target the ascending trendline, which connects the lowest swings since October.

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