EUR/USD consolidates losses ahead of Eurozone inflation release

EUR/USD shows marginal losses on Friday’s early European session, trading at 1.1560 at the time of writing after being rejected at the 1.1580 area. The pair remains dangerously close to the 1.1540 support area, on track for a 0.5% weekly decline, amid a frail market sentiment and with all eyes on the Eurozone Harmonized Index of Consumer Prices (HICP) release, due at 10:00 GMT.

The US Dollar has been drawing support by a “hawkish cut” by the Federal Reserve on Wednesday – which prompted investors to pare back hopes of another cut in December – and a deal between US President Trump and Chinese President Xi Jinping to maintain the trade truce between the world’s two major economies.

In the Eurozone, the European Central Bank met expectations and left its benchmark interest rate unchanged at 2%. ECB President Christine Lagarde reiterated that the bank is “in a good place” and conveyed a fairly optimistic message, dismissing the possibility of further rate cuts in the near term. The Euro ticked up after the event, but upside attempts remain limited so far.

The highlight on Friday is the Eurozone preliminary HICP figures for October, which are expected to show that yearly inflation eased to 2.1% from 2.2% in the previous month, with the core reading slowing down to2.3% year-on-year growth from 2.4% in September.

Daily digest market movers: The Dollar appreciates in cautious markets

• The US Dollar remains bid on Friday, buoyed by a combination of dwindling hopes of a December rate cut, the positive impact of the Sino-US trade deal, and a mild risk aversion following declines in Wall Street on Thursday as earnings figures from Meta and Microsoft sparked fresh concerns about AI valuations and triggered sharp losses in tech stocks.
• The European Central Bank kept its Rate on the Deposit Facility at 2% for the third consecutive meeting on Thursday, and Christine Lagarde conveyed a fairly optimistic message, showing confidence about economic growth, although warning about the high uncertainty surrounding inflation.
• On Friday, ECB Governing Council member Martin Kocher echoed Lagarde’s comments, assessing that the economic projections are on target for a sustained time and that some recent data came up “slightly better”, suggesting that the bank has no plans to ease monetary policy further in the near-term.
• In the US, the hawkish comments by Federal Reserve Chairman Jerome Powell have sent US Treasury yields surging, providing additional support to the US Dollar. The yield of the benchmark 10-year note has rallied more than 30 basis points since Wednesday to hit three-week highs at 4.10%
• The CME Group’s FedWatch Tool shows that expectations for a further rate cut in December have dropped to a 64.8% chance from 91% ahead of Wednesday’s monetary policy decision.

Technical Analysis: EUR/USD hovers above a key support at 1.1540

The EUR/USD has broken the monthly triangle pattern and the feeble recovery attempt seen after the ECB’s monetary policy decision has been capped below a previous support area at 1.1580, confirming the pair’s bearish bias. The 4-hour Relative Strength Index (RSI) is low but still above oversold levels, while the Moving Average Convergence Divergence reflects a strong negative momentum.

Bears are now focusing on the key support area around 1.1545 (October 9 and 14 lows). Below here, the 1.1500 round level is a plausible target ahead of the measured target of the triangle pattern at the 1.1450 area.

To the upside, the mentioned 1.1580 area – which held losses in October 22, 23, and 28 – is acting now as resistance. Further up, the reverse trendline, now around 1.1615, and Thursday’s high near 1.1635 are likely to challenge bulls ahead of the October 28 and 29 highs in the area of 1.1670.