The Euro has dropped to its lowest level since late July, dipping below $1.1450. This decline represents an undoing of about 80% of its August rally, which saw the EUR/USD climb from near $1.1350 to just over $1.1700. The primary driver of this depreciation is the strengthening US Dollar, fueled by rising US rate expectations. A weaker consumer survey in the Eurozone also contributed to the Euro's struggles, with September's flash consumer confidence reading coming in at -16.5, below the forecast of -16 and down from -15.5 in August.
The European Central Bank (ECB) raised its deposit rate to 2.50% on September 10, its second increase since energy prices surged. Futures traders currently anticipate three or four more rate hikes from the ECB over the next year. However, both ECB President Lagarde and Vice-President Vujčić have indicated that the market's expectations for aggressive rate increases might be too high, suggesting that the ECB's response to inflation is measured and not solely tied to energy prices. This divergence between market expectations and official ECB commentary is undermining support for the Euro.
From a technical standpoint, the EUR/USD pair has experienced selling pressure for three consecutive days. Last week's breakdown below the 100-day Simple Moving Average (SMA) and its current position below key Fibonacci retracement levels (61.8% at $1.1474 and 50.0% at $1.1519) reinforce the bearish outlook. Despite the Relative Strength Index (RSI) indicating slightly oversold conditions at 29.7, the prevailing market sentiment and technical indicators suggest a continued depreciating trend for the Euro.
