EURUSD fell heavily towards a fresh 6-month low and broke several supports during the process after the US dollar extended the bullish rally. ECB's possible pause in rate hike sentiments has been keeping the euro under pressure lately. However, the President of the European Central Bank (ECB) Christine Lagarde signalled on Monday that borrowing costs may have reached their peak but will remain high for as long as it takes to curb inflation.

EURUSD largely unchanged on Wednesday, holding close to the multi-month low after the release of weak German economic data. Data published on Wednesday revealed that the German consumer confidence dipped further in October. On Monday, the German IFO business climate report showed that the business climate index dropped from 85.8 in August to 85.7 in September.

Cooling inflation, nearing the end of ECB hikes send EURUSD to 6-month lows

September European Central Bank meeting seems to have implemented its last 25 basis point rate hike in the current tightening cycle. The European Central Bank hiked interest rates to a record level. Its 10th consecutive rate hike bumped the bank's deposit rate by 25 basis points up to 4%. While ECB President Christine Lagarde refrained from affirming that the European Union has hit its interest rate cycle’s peak.

Inflation is also slowing in the European regions. The last CPI report showed the annual inflation in the Eurozone has come in lower than expected at 5.2% for August, down from 5.3% in July, but still well above the ECB 2% target. In Germany, the preliminary estimate showed that in August 2023, the year-on-year consumer price inflation rate slightly decreased to 6.1 percent from 6.2 percent in the previous month.

EURUSD Fundamental Forecast

The biggest catalyst for the euro will be the upcoming German and Eurozone inflation data scheduled for Thursday and Friday. Economists expect the data to show that the headline Eurozone annual consumer prices dropped to 4.5% in September, down from 5.2 per cent in August. Meantime, it will also be an idea to keep a lookout for fresh updates from the ECB’s monthly Economic Bulletin and comments from the European Central Bank speakers this week including ECB president Christine Lagarde and members Elizabeth McCaul and Andrea Enria.

EURUSD: Buy the dip or sell the rip?

The daily chart shows that the EURUSD has been in a strong bearish trend in the past few months. In this period, it managed to move below the important support level at 1.0600, for the first time since March. The Euro remains under pressure against the dollar, with the EURUSD trading below 1.0550 as of writing. The below chart reveals a few key levels which act as the areas of supply and demand. In the short term, we may see a further potential push down towards the 1.0540/30 area.

Considering the bearish sentiment, if the pair manages to stay above the 1.0500 level and forms a false breakout, it could indicate a lack of selling conviction and a possible rebound. In the medium-term, if the currency pair regains the upside momentum, then the immediate resistance near 1.0630, break this and close above this resistance level then expecting the market to zoom up to 1.0720 and 1.0770/1.0820.

Another scenario suggests that the EURUSD quotes continue to decline unless they manage to rebound back to above 1.0700. The key signal indicating a continuing downward movement will be a breakout of the psychological support level at 1.0500.

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