EUR/USD edges higher though ECB dovish bets keep downside intact

• EUR/USD recovers mildly while the US Dollar’s rally stalls as the US CPI comes under the spotlight.
• The Fed is expected to cut interest rates by 25 bps in November.
• A majority of ECB policymakers are open to more rate cuts.

EUR/USD rises to near the psychological resistance of 1.1000 in Tuesday’s European session. The major currency pair recovers mildly as the US Dollar (USD) faces a slight correction, with investors shifting focus to the United States (US) Consumer Price Index (CPI) data for September, which will be published on Thursday.

The inflation data is expected to show that the annual core CPI – which excludes volatile food and energy prices – has grown at a steady pace of 3.2% year-over-year (YoY). The headline inflation is estimated to have decelerated to 2.3% YoY from 2.5% in August.

The impact of the inflation data is expected to be lower on the Federal Reserve’s (Fed) interest rate outlook as policymakers are more focused on reviving economic growth and consumer spending. The comments from Fed Governor Adriana Kugler in Tuesday’s European session suggested that the policymaker sees more rate cuts as appropriate if price pressures continue to decline as expected.

Meanwhile, financial market participants expect the Fed to cut interest rates again in November, but the rate-cut size is expected to be 25 basis points (bps), according to the CME FedWatch tool. Lately, market speculation for a Fed 50 bps rate cut waned after the US job report for September, which showed that labor demand remained robust and wage growth was stronger than expected.

Daily digest market movers: EUR/USD rises slightly despite ECB Nagel is open for more rate cuts

• EUR/USD edges higher amid a mild correction in the US Dollar. The outlook of the Euro (EUR) remains fragile as a majority of European Central Bank (ECB) officials continue to emphasize the need to reduce interest rates further due to a sharp deceleration in Eurozone price pressures and poor economic growth.
• In an interview with Table Media, ECB policymaker and Bundesbank President Joachim Nagel said, "I am certainly open to considering whether we could possibly make another interest rate cut.” Nagel has also agreed with the revision of the Eurozone’s Gross Domestic Product (GDP) forecast for 2024 to a 0.2% contraction against a prior projection of 0.3% growth.
• However, the German Industrial Production for August has come in better than expected. On a monthly basis, Industrial Production grew at a robust pace of 2.9%, compared to estimates of 0.8% after contracting by 2.4% in July.
• Meanwhile, ECB policymaker and Austrian central bank Governor Robert Holzmann advised to proceed with caution on further interest rate cuts as inflation has yet not been defeated, in his comments while interviewing with Sueddeutsche Zeitung published on Monday. In September, the Eurozone flash Harmonized Index of Consumer Prices (HICP) decelerated to 1.8% year-on-year.

Technical Analysis: EUR/USD remains below 1.1000

EUR/USD gathers strength to gain ground near the immediate support of 1.0950. The major currency pair is broadly under pressure as it has delivered a breakdown of a Double Top chart pattern formation on a daily timeframe. The above-mentioned chart pattern was triggered after the shared currency pair broke below the September 11 low of 1.1000.

The 14-day Relative Strength Index (RSI) slides below 40.00. A bearish momentum would trigger if the RSI sustains below the same.

Looking down, the pair is expected to find support near the 200-day Exponential Moving Average (EMA) around 1.0900. On the upside, the 20-day EMA at 1.1070 and the September high around 1.1200 will be major resistance zones.