EURUSD Drops Sharply as ECB Signals Two Consecutive Rate Cuts【October 18, 2024】

Fundamental Analysis

• The ECB has implemented two consecutive rate cuts to bolster the EU economy.
• While the ECB moves quickly to lower rates, the Fed’s rate cut may be delayed.
• This situation is leading to EUR selling and USD buying, and there is a possibility that EURUSD may fall below parity at 1.0.

EURUSD technical analysis

Analyzing the daily chart of EURUSD, a double top has formed with a peak at 1.12 USD. The pair has broken below the neckline, strengthening the downtrend. Recently, it also broke below the key level of 1.09 USD on the monthly chart, and after the ECB’s consecutive rate cuts, it has fallen for four straight days.

The EU economy is weakening, with worsening employment conditions. The continued high-interest rate environment is significantly affecting consumption. Meanwhile, U.S. retail sales exceeded expectations, indicating that consumption remains resilient despite high interest rates.

The ECB is likely to continue its rate-cutting policy, while the Fed will be cautious in lowering rates, which may strengthen USD buying relatively. The possibility of Trump’s re-election is also starting to be priced into the market, suggesting the USD-buying trend may continue for some time.

Day trading strategy (1 hour)

Analyzing the 1-hour chart of EURUSD, the pair is confirming a strengthening downtrend while forming a descending channel. After the ECB’s second consecutive rate cut, the pair temporarily broke below the -3σ line of the Bollinger Bands yesterday. A long lower shadow has formed, coinciding with the lower boundary of the descending channel.

Since RSI is at 31, a corrective rebound is likely. Expect a rebound to around 1.0850 USD. The day trading strategy is to sell on the rebound. Enter a sell position around 1.085 USD, which is where the middle Bollinger Band line is trending, and target 1.080 USD, a round number, for take profit. Set the stop at 1.0885 USD.

Support/Resistance lines

The following support and resistance levels should be considered going forward:

• 1.09 USD: Key resistance on the monthly chart
• 1.085 USD: Middle Bollinger Band line
• 1.08 USD: Round number

Market Sentiment

EURUSD Sell: 10% Buy: 90%

Today’s important economic indicators

*Trading advice in this article is not provided by Milton Markets, but by Shu Fujiyasu Jr., a certified technical analyst.