25 Oct 2024

•   The EUR/USD currency pair is working to extend its recovery from Thursday, with aspirations to exceed the 1.0800 threshold in Friday's European trading session. The resurgence on Thursday followed the announcement of the flash Hamburg Commercial Bank (HCOB) Eurozone Purchasing Managers Index (PMI) report for October.
• The Euro's rebound may be temporary, as indicated by the preliminary PMI report revealing ongoing contraction in the Eurozone's economic activity. The flash Composite PMI fell to 49.7 in October. Initial data suggests that the manufacturing sector remains in decline, with the manufacturing PMI remaining below the critical 50 mark that distinguishes expansion from contraction for the past 28 months. Additionally, the service sector experienced unexpected growth, albeit at a reduced rate. The persistent decrease in business activity within the Eurozone signals growing uncertainty regarding economic growth.
• In the meantime, increasing speculation regarding a more substantial interest rate reduction by the European Central Bank (ECB) during its upcoming policy meeting in December is anticipated to further hinder the performance of the shared currency pair. This year, the ECB has already lowered its Deposit Facility Rate on three occasions by 25 basis points (bps), bringing it down to 3.25%.
• Market expectations for the ECB to reduce its key borrowing by 50 bps in December have been boosted by dovish commentaries from a few policymakers who have highlighted risks of inflationary pressures remaining below the bank’s target of 2% due to fears of a downturn.
• governer of the Bank of Portugal and ECB policymaker Mario Centeno said that the option of a 50 bps rate cut in December is on the table. Centeno warned that downside risks to growth are accumulating.
• The economic landscape has been influenced by data published on Friday, which indicated that the German IFO Business Climate, Current Assessment, and Expectations for October exceeded both forecasts and previous figures. Traditionally, an enhancement in market sentiment suggests a potential recovery in economic conditions; however, this scenario seems improbable due to sluggish business activity.

Technical Analysis: EUR/USD

1. EUR/USD maintains its recovery above the 1.0800 mark during the European trading session. Nevertheless, the overall outlook for this major currency pair remains pessimistic as it continues to trade below the 200-day Exponential Moving Average (EMA), which is situated around 1.0900
2. The downward trend in the shared currency pair commenced following the breakdown of a Double Top pattern on the daily chart near the September 11 low, approximately at 1.1000, leading to a bearish reversal.
3. The 14-day Relative Strength Index (RSI) is currently positioned within the 20.00-40.00 range, signifying a robust bearish momentum. However, a potential recovery could be anticipated as the market conditions appear oversold.
4. On the downside, the pair may experience further weakness towards the significant support level of 1.0700 if it falls below the upward-sloping trendline, which is drawn from the October 3 low around 1.0450, currently at 1.0750. In contrast, the 200-day EMA near 1.0900 and the psychological level of 1.1000 will serve as critical resistance points for the pair.