At a Glance
- EUR/USD trades near 1.1600 as markets await the ECB’s monetary policy decision.
- Positive news from the China-US trade deal and better-than-expected Eurozone GDP failed to significantly boost the pair.
- The Federal Reserve cut rates by 25 bps but hinted at uncertainty regarding future moves, strengthening the US Dollar.
- Eurozone Q3 GDP grew 0.2%, surpassing forecasts, with improvements in economic sentiment indicators.
- Technical analysis suggests EUR/USD is forming a symmetrical triangle pattern, indicating a potential continuation move.
Market Movements and Economic Data
The EUR/USD currency pair is currently trading near the 1.1600 level, retracing earlier gains from session highs of 1.1635. Market participants are adopting a cautious stance as they anticipate the European Central Bank’s (ECB) upcoming monetary policy announcement. This hesitation is causing the pair to tread water, despite positive developments such as progress in the China-US trade negotiations and stronger-than-expected Gross Domestic Product (GDP) figures for the Eurozone.
Preliminary Eurozone GDP data for the third quarter revealed an economic acceleration to 0.2%, exceeding the forecast of 0.1% growth. Additionally, economic sentiment has improved beyond expectations, with enhanced confidence observed in both the industrial and services sectors’ activity.
Geopolitical Developments and Federal Reserve Policy
Earlier in the day, U.S. President Donald Trump reported an amazing meeting with Chinese President Xi Jinping, stating that the U.S. would reduce tariffs on Chinese imports. In return, China is expected to maintain rare earths trade, resume purchases of U.S. soybeans, and cease the fentanyl trade. While President Xi’s reaction was more reserved, he acknowledged an understanding on important economic and trade issues. Investors have responded positively to this news, although the market reaction has been moderate.
On Wednesday, the Federal Reserve implemented a widely expected 25 basis points (bps) interest rate cut. However, Fed Chair Jerome Powell’s remarks cast doubt on further reductions in December, leading to a broad rally in the U.S. Dollar following his press conference.
Eurozone Economic Indicators
The Eurozone’s preliminary Q3 GDP showed a 0.2% increase, up from 0.1% in the prior quarter and surpassing market expectations of steady 0.1% growth. On a year-on-year basis, the region’s economy expanded by 1.3%, a slight decrease from the previous quarter’s 1.5% but still better than the anticipated 1.2% growth.
The European Commission’s Economic Sentiment Indicator rose to 96.8 in October from 95.6 in September, exceeding the consensus forecast of 95.7. Industrial confidence also increased to -8.2 from -10.1, outperforming the predicted -10.0, while Services Sentiment improved to 4 from 3.7, contrary to expectations of a decline to 3.3. Consumer Confidence remained stable at -14.2.
📍 The unemployment rate in the Eurozone held steady at 6.3% in September, unchanged from the previous month and in line with market consensus.
Earlier, preliminary Q3 GDP figures for Germany indicated an economic standstill after a 0.3% contraction in the preceding quarter. The yearly GDP saw a rebound to 0.3% growth, following a 0.2% contraction in Q2, which aligned with expectations.
Technical Outlook for EUR/USD
The EUR/USD pair is currently navigating without a clear directional bias, with price action consolidating within a progressively tightening range, forming a symmetrical triangle pattern. This chart formation typically suggests an impending continuation move.
Technical indicators appear to support this outlook. The 4-hour Relative Strength Index (RSI) is positioned below 44, and the Moving Average Convergence Divergence (MACD) has crossed below its signal line. Wednesday’s decisive bearish candle indicates increasing downward momentum. However, the support zone around 1.1580, corresponding to the lows of October 22nd and 23rd, is currently limiting declines and preventing a move towards the key support area near 1.1545 (lows of October 9th and 14th). The measured target for the triangle pattern points towards the 1.1450 region.
On the upside, the pair is encountering resistance in its attempts to extend gains beyond the previous support level at 1.1625 (October 28th low). Above this level, the upper boundary of the triangle pattern is situated around 1.1665, with the highs of October 28th and 29th near 1.1670. Further resistance is expected at the October 17th high, approximately 1.1730.
Frequently Asked Questions: ECB and the Euro
What is the ECB and how does it influence the Euro?
The European Central Bank (ECB), headquartered in Frankfurt, Germany, serves as the reserve bank for the Eurozone. It is responsible for setting interest rates and managing monetary policy for the region. The ECB’s primary objective is to maintain price stability, aiming for inflation to be around 2%. Its principal tool for achieving this is adjusting interest rates; higher rates typically strengthen the Euro, while lower rates tend to Weaken it. The ECB Governing Council, comprising the heads of the Eurozone national banks and six permanent members, including ECB President Christine Lagarde, convenes eight times a year to make monetary policy decisions.
What is Quantitative Easing (QE) and how does it affect the Euro?
Quantitative Easing (QE) is an uncommon monetary policy tool employed by the European Central Bank during extreme economic circumstances. Through QE, the ECB injects newly created Euros into the financial system by purchasing assets, predominantly government or corporate bonds, from banks and other financial institutions. This process generally leads to a depreciation of the Euro. QE is typically considered a last resort when conventional interest rate reductions are deemed insufficient to achieve price stability. The ECB has utilized QE during significant periods, including the Great Financial Crisis (2009-11), a period of persistently low inflation in 2015, and more recently during the COVID-19 pandemic.
What is Quantitative Tightening (QT) and how does it affect the Euro?
Quantitative Tightening (QT) is the inverse of Quantitative Easing (QE). It is typically implemented after a period of QE, when economic recovery is underway and inflation begins to rise. While QE involves the ECB purchasing bonds to provide liquidity, QT entails the ECB ceasing new bond purchases and discontinuing the reinvestment of principal from maturing bonds it already holds. This policy action is generally considered positive, or bullish, for the Euro.
Final Thoughts
The EUR/USD pair is experiencing a period of consolidation as market participants await the crucial ECB monetary policy announcement. Despite positive economic data from the Eurozone and progress in U.S.-China trade relations, investor sentiment remains cautious.
The Federal Reserve’s recent rate cut and forward guidance have introduced uncertainty, impacting the U.S. Dollar’s trajectory. Technical indicators suggest a potential continuation pattern forming, but key support and resistance levels will be critical in determining the near-term direction.