EUR/USD faces pressure from a hawkish Fed, France's fiscal crisis and geopolitical risks, according to ActionForex. The ECB appears more cautious than the Fed, which widens the interest rate differential in favour of the dollar. The Fed and ECB meetings in the last days of October are the key events.
EUR/USD remains in a downtrend on the H4 chart, and the fundamental backdrop leans toward the dollar. ActionForex describes the pair as under triple pressure from a hawkish Fed, France's fiscal crisis and geopolitical risks.
Inflation rises on both sides of the Atlantic
Eurozone annual inflation rose to 3.8% in September from 3.2% in August, with energy prices up 18.9% year-on-year. US CPI, meanwhile, accelerated to 3.7% from 3.4%, and core CPI stood at 2.6%.
The ECB appears more cautious than the Fed, and that widens the interest rate differential in favour of the dollar. The 10-year US Treasury yield has climbed above 5.30%, which gives the dollar a significant yield advantage and supports capital inflows to the US.
France and the Middle East add risk
Budget negotiations have begun in the French parliament, but there is no stable ruling majority. EUR/USD could fall to 1.05 in a worst-case scenario, while UBS forecasts a recovery to 1.16 by year-end.
The Middle East conflict remains the largest source of uncertainty. It supports energy inflation and demand for the US dollar as a safe-haven currency, according to the report.
Technical levels point lower
The pair completed another downward wave around 1.1112 and recovered towards resistance at 1.1270. A consolidation range is forming below that level, and the rise is viewed as a corrective wave within the main downtrend.
ActionForex expects the correction to end, followed by a move towards 1.1178. A break below that support would open the way towards 1.1083 and then 1.0888. A break above 1.1270 would instead extend the correction towards 1.1379.
The Fed meets on 27–28 October and the ECB on 28–29 October.
Source: ActionForex
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