Euro/USD forecast: Risk still tends to go down further

The slight rise during the US trading session was blocked, and it was reported at 102.5106 during the session, up 0.02%. The ongoing tensions in the Middle East and the blowout US jobs report last Friday triggered a hawkish shift in interest rate expectations. The US dollar is expected to remain largely stable, but with a slight hawkish bias.

In the short term, there does not seem to be much to drive a sharp sell-off in the US dollar, except for the possible easing of tensions in the Middle East. The market has basically given up on the idea of ​​a 50 basis point rate cut, and this week's US inflation data may not change that. In the eurozone, although German industrial data unexpectedly grew by 2.9% month-on-month, this is unlikely to prevent the ECB from cutting interest rates by 25 basis points next week. Therefore, the forecast for EUR/USD remains mildly bearish.

The forecast for EUR/USD has turned mildly bearish

Although the US dollar has soared since Powell's hawkish remarks and the release of a fairly strong non-farm payrolls report last week, we have seen more dovish signals from other major central banks, including the European Central Bank, the Bank of England, and the Bank of Japan.

As for the dollar, the market is now fully aligned with Fed Chairman Jerome Powell's opposition to a 50bp rate cut, with 25bp cuts now expected in November and December. Until new employment and economic activity data are released in late October, it is unlikely that there will be any changes in the EUR/USD forecast unless the ECB surprises next week.

The next key US data will be released on Thursday, when we will get the latest CPI estimates. The PPI, which measures inflation, will be released on Friday. All in all, these inflation data are not expected to significantly change the Fed's stance or the dollar's strength unless there are major surprises. The core CPI is expected to fall to 0.2% month-on-month in September, down from a 0.3% increase in August. Even if the data is only 0.1%, it is unlikely to divert attention from the labor market. With the Fed now focused on its employment mission, any unexpected inflation data should only cause minor fluctuations in the dollar, keeping the EUR/USD forecast relatively stable.

Geopolitics: Concerns about the Middle East remain high

While tensions in the Middle East may not escalate further, a clear de-escalation seems unlikely, which means that oil prices are likely to remain high. This should weigh on the euro.

Impact of the US presidential election on EUR/USD

In addition, with the US presidential election approaching, defensive positions should favor the dollar more than the euro. Polls are very close, indicating that it is a close race. According to the latest New York Times and Siena College poll conducted between September 29 and October 6, Kamala Harris leads Trump in the White House race by a narrow margin of 49% to 46%. Separately, a Reuters/Ipsos poll showed Harris' lead over Trump narrowed to 46% to 43%.

Meanwhile, on Monday, the odds on blockchain-based presidential election betting platform Polymarket shifted mainly to Trump. If this means that Trump's chances of winning increase, this could have a negative impact on the EUR/USD forecast.

Last week, EUR/USD fell below the support area between 1.1000 and 1.1025. As a result, it has created a temporary lower low, which suggests that the technical forecast for EUR/USD has turned bearish. Unless we move back above this area, the path of least resistance remains to the downside, despite the small rise in rates so far this week. The next key support to watch is around 1.0900, followed by the 200-day moving average around 1.0875.