EUR/USD, Oil Forecast: Two trades to watch

EUR/USD falls post Powell & ahead of Eurozone inflation

• Eurozone inflation is expected to cool to 1.9% YoY from 2.2%
• Fed Powell reined in 50bpos rate cut expectations
• EUR/USD falls towards 1.11

EUR/USD is falling as investors continued to digest comments by Federal Reserve chair Jerome Powell and ahead of eurozone inflation data.

Economists expect eurozone inflation to ease to 1.9% YoY, down from 2.2%, while core inflation is expected to hold steady at 2.8%.

Inflation cooling in line with expectations could fuel expectations that the ECB will cut interest rates by 25 basis points again in the October meeting. The market is pricing in a 25 bps rate cut at every meeting until June.

PMI data is also in focus today. However, this is the final reading for the September manufacturing PMI, which is expected to confirm that the sector contracted 44.8, down from 45.8 in August.

The USD is falling as investors rein in Fed rate cut expectations after Powell's comments. Powell adopted a more hawkish tone in a speech at the conference in Tennessee. Powell said that the Fed would likely stick to 25 basis point rate cuts moving forward. He also noted that the committee was not in a hurry to cut rates quickly.

The market remains convinced that the Fed will cut rates at the November meeting, but expectations for a 50 basis point reduction fell to 35% from 54% a day earlier.

The dialing back of rate cut expectations has boosted the US dollar as attention turns to US ISM manufacturing PMI figures and jolts job openings later today.

ISM manufacturing PMI is expected to remain in contraction at 47.5, up from 47.2 in August.

Meanwhile, JOTLS job openings are expected to hold steady at around 7.67 million.

EUR/USD technical analysis

EUR/USD failed to break above 1.12, falling below 1.1140, the December 2023, and is testing the rising trendline support and 1.11 level.

For now, the uptrend remains in place. However, a further breakdown of levels could see the formation of a double top reversal pattern, opening the door towards 1.1050. A break below 1.10 would create a lower low.

Should the rising trendline support hold, buyers will look to rise above 1.12 to create a higher high.

 

Oil falls on over-supply concerns.

• OPEC+ is expected to start unwinding output cuts in December
• Risk premium from Middle Eastern tensions remains low for now
• Oil tests 67.50 support

Oil prices are edging lower as the prospect of increased supply from OPEC+ offsets supply concerns in the Middle East.

OPEC+ and its allies are expected to gradually unwind some production cuts starting in December, raising concerns about an oversupplied market next year. The group pushed back the unwinding of 180,000 barrels per day cuts from 1 October to 1 December. This, combined with Saudi Arabia abandoning its $100 per barrel target, points to an acceptance by the world's largest oil producer of a lower oil price environment.

Meanwhile, tensions in the Middle East are ramping up, which is offering some support to oil prices. However, given that oil production hasn't been materially affected yet, the risk premium on oil remains relatively low. This could change, and the risk of supply disruption would increase dramatically if Iran became more directly involved.

Oil forecast – technical analysis

Oil trades below its falling trendline dating back to July. The recent rebound from 65.25, the September low failed to retake the 71.50 – 72.50 resistance zone, and rebounded lower.

The price is testing 67.50 support, a level which offered support in December 2023 and June 2023. A break below here is needed to test 65.25 the 2024 low, and to create a lower low for the down trend to continue.

Should 67.50 support hold, buyers will look to rise towards 71.50 to 72.50.