EUR USD slides to new 7 month low maintains bearish momentum

EUR/USD continued to slide on Tuesday as key inflation data from the US showed an increase in consumer prices that met expectations in October, after the two previous months showed consecutive declines in prices.

This major data point in the form of the Consumer Price Index (CPI) led to a further drop for EUR/USD due to its added support for a December interest rate hike in the US and a subsequent surge for the US dollar.

As a result, EUR/USD fell to a new seven-month low not far from the 1.0600 handle, extending the short-term bearish momentum that has been in place since this past Friday. From somewhat of a longer-term perspective, the currency pair has also been entrenched in a sharp bearish trend since its mid-October highs near 1.1500.

With the hawkish stance of the US Federal Reserve having potentially been further reinforced by Tuesday’s CPI data, combined with an increasingly dovish European Central Bank (ECB) that is poised to extend stimulus measures in the form of additional quantitative easing, divergent monetary policy between the ECB and the Fed has recently been magnified. The result of this sustained divergence is likely to be significantly more downside for EUR/USD.

Within the current month-long downtrend, after breaking down below major 1.0800 support the currency pair rebounded last week to retest 1.0800 as resistance, but quickly retreated. This breakdown-retest-retreat price action is a common technical pattern within bearish trends, and it underscores EUR/USD’s current downside momentum.

With continued trading under 1.0800, the outlook remains significantly bearish. In the run-up to December’s Fed meeting, further Fed-driven dollar-support and the likelihood of more stimulus measures from the ECB could place EUR/USD on a track towards 1.0500 support, near March’s long-term lows. Any further downside momentum below 1.0500 could then steer the currency pair towards its long-term target at parity (1.0000).