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EUR/USD rises on USD weakness post Powell

• Powell signals more rate cuts are coming
• EZ industrial production, ECB & Fed speakers in focus
• EUR/USD forms a double bottom reversal pattern

EUR/USD is bouncing on Wednesday, returning to the 1.1630 level up from a two-month low of 1.1545 earlier in the week.

A weaker U.S. dollar is supporting the pair as attention turns back to Federal Reserve monetary policy, which is overshadowing fears over U.S.-China trade tensions.

Federal Reserve chair Jerome Powell yesterday highlighted a weakening of the US labour market rather than inflationary risks, indicating that the bank is ready to cut interest rates again in October. Powell also announced that the Fed is close to a point where it will stop selling its bond holdings and the so-called quantitative tightening programme.

The market is now convinced that the Federal Reserve will bring back-to-back rate cuts with a 25 basis point reduction in October and again in December, pulling the US dollar lower and supporting risk sentiment.

Meanwhile, the ongoing trade tensions between the US and China continued to escalate. Donald Trump threatened to end some cooking oil business with China after Beijing refused to buy US soya beans. This comes after both sides raised taxes on cargo vessels on Tuesday. Escalating tensions come ahead of the APAC summit later this month.

On the economic calendar, attention is turning to eurozone industrial production and the New York Empire State manufacturing survey as the main points.

ECB Vice President Luis de Guindos is set to speak, as well as a plethora of Fed officials, including Christopher Waller and Stephen Miran.
 

EUR/USD forecast – technical analysis

On the 4-hour chart, EUR/USD trades within a falling channel dating back to mid-September. The price found support at 1.1545 and has recovered higher, forming a double bottom reversal pattern, now rising above the mid-point of the falling channel to test the 50 SMA resistance at 1.1635.

Buyers supported by the RSI above 50 will look to extend the recovery towards the 1.17 resistance zone, the round number, the psychological level, the 200 SMA, and the upper band of the falling channel.

Failure to retake the 50 SMA could see the price fall back to retest 1.1545. A break below here is needed to create a lower low.
 

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Oil falls to a 5-month low on supply glut worries

• IEA predicted a larger-than-expected supply glut
• US-China trade worries hurt the demand outlook
• Oil falls to a 5-month low

Oil prices are extending losses from yesterday amid fears over supply and trade tensions between the US and China. Chinese inflation figures Support further monetary easing.

Oil prices are down around 6% this week after the IEA projected a larger-than-expected surplus with massive volumes of oil in storage or transit to reach key hubs.

Traders are also concerned about escalating tensions between the US and China, the world's two largest oil consumers, which could hurt the demand outlook.

China's September CPI data showed that the world's second-largest economy remained in deflation. The data already supports further monetary easing, although the People's Bank of China could wait until after a potential Exide trump meeting in case talks go badly. Chinese CPI came in at -0.3% year over year.

Meanwhile, the Israel-Hamas peace deal also means that the risk premium in the region has faded, easing potential supply concerns.

Attention is now turning to US inventory data due later today for more clues on the consumption outlook.
 

Oil forecast - technical analysis

Oil has been forming a series of lower highs and lower lows since mid-June, with the bears in control. More recently, the price failed to retake 65 and rebounded lower, breaking below 60.00 to a 5-month low of 57.60. The price trades below its 50, 100, and 200 SMA, and the RSI is below 50, keeping sellers hopeful of further downside.

Sellers will look to extend the selloff towards 55.35, the 2025 low.

Buyers will need to rise above 60 to expose the 50 SMA at 62.90. Above here, 65.00 comes into focus.
 

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