EUR/USD slides to near 1.0780 in Wednesday’s European session. The major currency pair faces selling pressure from the US Dollar’s (USD) rally. The US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, extends its upside to 104.20 and aims to revisit the August high of 104.45. The Greenback has strengthened amid political uncertainty ahead of the US presidential election and firm expectations that the Federal Reserve’s (Fed) policy-easing cycle will be more gradual than previously expected.
The sheer strength of the US Dollar can also be attributed to increasing market bets that former US President Donald Trump could win the election, which will be held in less than two weeks. However, the latest Reuters/Ipsos polls show that current Vice President Kamala Harris leads by a slight margin. Trump’s victory is expected to result in higher tariffs and lower taxes, which could force the Federal Reserve (Fed) to return to a restrictive policy stance.
Meanwhile, markets expect the Fed to cut interest rates further by 50 basis points (bps) in the remaining year, suggesting that there will be two 25 bps rate cuts in November and December, according to the CME FedWatch tool.
The Fed is unlikely to repeat the jumbo rate cut move seen in September again this year as the latest Nonfarm Payrolls (NFP) data showed that labor demand has not slowed much. "Wage growth has slowed since the peak in 2022, but it is still stronger than at any point in the decade before the pandemic," analysts at UBS said.
In Wednesday’s session, investors will pay close attention to the Fed’s Beige Book, which will be published at 18:00 GMT. Several Fed and ECB members, including President Lagarde, are set to speak.
EUR/USD tests region below 1.0800 in European trading hours. The outlook of the major currency pair remains downbeat as it stays below the 200-day Exponential Moving Average (EMA), which trades around 1.0900.
The downside move in the shared currency pair started after a breakdown of the Double Top formation on a daily time frame near the September 11 low at around 1.1000, which resulted in a bearish reversal.
The 14-day Relative Strength Index (RSI) dives below 30.00, indicating a strong bearish momentum. However, a recovery move remains on the cards as conditions turn oversold.
On the downside, the major could find support near the upward-sloping trendline at 1.0750, which is plotted from the October 3 low around 1.0450. Meanwhile, the 200-day EMA and the psychological figure of 1.1000 will be the key resistance for the pair.
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