The EUR/USD pair continued its downward trend on Tuesday, falling to around 1.0890 in the last hour of trading. This decline marks the second consecutive day of losses, bringing the pair closer to its lowest level since August 8. Bearish traders are awaiting a decisive break below the 200-day Simple Moving Average (SMA) before initiating new positions, especially with the European Central Bank (ECB) set to announce its policy decision on Thursday.
The ECB is widely anticipated to cut interest rates for the third time in this easing cycle, driven by increasing concerns over sluggish economic growth in the Eurozone. Notably, inflation in the region has fallen below the ECB’s 2% target for the first time since 2021, reinforcing the case for further monetary policy easing. This outlook is exerting pressure on the euro, compounded by a strengthening US Dollar (USD).
The US Dollar Index (DXY), which measures the USD against a basket of currencies, remains elevated near a two-month high. This strength is bolstered by rising expectations for a less aggressive approach to monetary easing from the Federal Reserve (Fed). Market sentiment has shifted significantly, with the likelihood of an oversized Fed rate cut in November now fully priced out, keeping US Treasury bond yields high. Additionally, ongoing geopolitical risks have increased demand for the safe-haven dollar, further contributing to the downward pressure on the EUR/USD pair.
As traders anticipate upcoming economic data, attention turns to Tuesday’s schedule, which includes the release of the German ZEW Economic Sentiment Index and Eurozone Industrial Production figures. Later in the North American session, the Empire State Manufacturing Index and speeches from influential Federal Open Market Committee (FOMC) members are expected to influence USD demand, potentially providing short-term momentum for the EUR/USD pair.
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