EUR, USD, and GBP in Focus.

• EUR/USD Downtrend: The Euro is likely to face further losses against the Dollar after breaking below the 200-day moving average, signaling a continued multi-week downtrend.
• ECB Rate Cuts: Market sentiment suggests the European Central Bank (ECB) will cut rates more aggressively than the U.S. Federal Reserve, putting additional pressure on the Euro.
• USD Stability: The U.S. Dollar gained ground due to risk sentiment, with strong U.S. retail sales supporting its position, despite some mid-week volatility.
• GBP/USD Weakness: The British Pound is struggling against the Dollar, facing potential drops below 1.30, with weak momentum and key events on the horizon.
• Upcoming Risks: Key market-moving events include the U.S. presidential election, non-farm payroll data, UK PMI data, and Bank of England speeches, which could drive volatility in the coming week.

EUR/USD: Euro Facing Continued Pressure

The Euro is likely to experience more losses against the Dollar over the next five days. Last week, the EUR/USD exchange rate dropped below the 200-day simple moving average (DMA), signaling a significant technical setback. The 200 DMA, currently at 1.0871, serves as a crucial indicator, with the Euro locked in a multi-week downtrend while trading beneath it. According to W. Brad Bechtel, an analyst at Jefferies, the 200 DMA often acts as a pivot point, keeping currencies “trapped” either above or below it for extended periods.

Recent attempts by the Euro to rebound have been capped by this technical level, and the currency may be set to test last week’s low of 1.0810. Fundamentally, the Euro is struggling as expectations mount that the European Central Bank (ECB) will cut interest rates more aggressively than the U.S. Federal Reserve. This sentiment is driving Eurozone bond yields lower compared to U.S. yields, creating further downside risk for the Euro. Analyst Kenneth Broux of Société Générale warns that a deeper fall could occur if U.S. yields gain upward momentum, especially in the aftermath of the U.S. presidential election. Near-term support is identified at 1.0778, with the possibility of further declines reminiscent of 2016. The ECB’s recent 25 basis point rate cut, combined with upcoming speeches from ECB officials, could shape the Euro’s path forward.

USD: Dollar in Demand Despite Volatility

At the time of writing, GBP/USD is trading at $1.3040, down 0.2% on the week. The British Pound initially gained strength thanks to a positive UK jobs report, but a cooler-than-expected consumer price index (CPI) sent the Pound tumbling to an eight-week low. UK inflation dropped from 2.2% to 1.7%, well below the Bank of England’s 2% target. Despite a late-week recovery, driven by better-than-expected UK retail sales, GBP/USD remained lower due to the safe-haven appeal of the U.S. Dollar (USD).

The USD traded on shifting market risk sentiment throughout the week, gaining ground against weaker rivals like the Pound. While a risk-on mood temporarily pressured the Dollar on Thursday, strong U.S. retail sales data helped the USD recover some losses. With limited U.S. economic data due, the Greenback’s movement is largely tied to global market volatility.

GBP/USD: Pound Under Pressure Ahead of Key Events

The British Pound is likely to stay on the defensive against the Dollar, with the possibility of GBP/USD dropping below the 1.30 mark in the next five days. Our Week Ahead Forecast model suggests the downside is favored, as the Pound’s rebound from last week ran out of steam near the nine-day simple moving average. Momentum remains weak, with the RSI indicator sitting at 40 and pointing lower, indicating a near-term preference for weakness.

With no major data releases expected from the UK or U.S. this week, the market is turning its attention to next week’s high-stakes events, including the U.S. presidential election and non-farm payroll data. These factors, along with UK PMI data and speeches from Bank of England officials, could heavily influence market sentiment. There’s concern that a softer PMI reading could weigh on the Pound, while any signs that the Bank of England may accelerate rate cuts could further pressure the currency.

In conclusion, the Pound remains vulnerable, especially if expectations for a December rate cut rise, which could lead to further downside.