Key Points
- EUR/USD fell over 2% in October as the dollar continued its revival.
- The fight against inflation is not yet done, and this could open the door to more dollar strength due to current market expectations.
- Expect EUR/USD volatility to pick up on Thursday when the European Central Bank takes center stage.
- With EUR/USD continuing its grind lower, it is important to be patient and wait for pullbacks into resistance levels.
Market Overview
EUR/USD started October on the back foot, and the market prediction made in the previous EUR/USD article is working out. The Euro is currently down over 2%, or 200 pips, against the greenback so far this month. In fact, if the month were to finish today, it would be the biggest monthly move in this pair in 2024.
This week, there are little “high-impact” US data events to be wary of. Thursday’s Retail Sales will likely steal the headlines from a US perspective, but it could be the European data that causes the volatility this week.
The Fight Against Inflation Is Not Over
Only a couple of weeks ago, the markets were feeling giddy about the prospects of numerous 50bps rate cuts, with the market’s pricing over 100bps worth of cuts this year. However, these expectations have been pegged back somewhat after a stronger-than-forecasted US Non-Farm Payrolls and US inflation report. According to the CME Fed Watch Tool, there is an 84% chance the Federal Reserve will opt for a 25bps rate cut and a 16% chance they will leave rates unchanged. This has led to the new narrative that the inflation story is not yet over, and this is a recipe for dollar strength.
Furthermore, Iran’s continued attacks on Israel represent a considerable escalation in the Middle East conflict, and traders have been flocking to safe-haven bets such as the US Dollar.
EUR/USD Continues Downside Momentum
EUR/USD has recently broken the key structure swing low at 1.10000 after ranging between this level and 1.12000 for a few weeks. After breaking this low, we can declare a new bearish leg starting from the wick of the liquidity sweep, and the current swing low.
The daily Fibonacci retracement is valid at the moment, but should the price break below the 0% level, traders must adjust accordingly. With the bearish structure confirmed, remaining patient and waiting for meaningful pullbacks in key areas is important. One of these key areas is at 1.10000, where there is a H4 Fair Value Gap. This sits on the 61.8% Fibonacci retracement level and could be a great resistance area with multiple confluences stacking up.
Risk Disclosure: The information provided in this article is not intended to give financial advice, recommend investments, guarantee profits, or shield you from losses. Our content is only for informational purposes and to help you understand the risks and complexity of these markets by providing objective analysis. Before trading, carefully consider your experience, financial goals, and risk tolerance. Trading involves significant potential for financial loss and isn't suitable for everyone.
