**EUR/USD Forecast: Euro Sellers Poised to Act if 1.1650 Support Breaks**
*Originally written by Eren Sengezer for FXStreet*
The EUR/USD currency pair has entered a period of pronounced bearish pressure as persistent concerns surrounding the Eurozone’s economic outlook and diverging monetary policy paths between the European Central Bank (ECB) and the U.S. Federal Reserve continue to weigh on the Euro. With a critical support level at 1.1650 under intense focus, the technical and fundamental backdrop indicates a greater risk to the downside.
This analysis delves into the key drivers of EUR/USD price movements, outlines potential scenarios under different conditions, and provides a comprehensive technical outlook for the days ahead.
## Fundamental Drivers Behind Euro Weakness
Several macroeconomic and monetary policy factors are working against the Euro, reinforcing bearish momentum in the EUR/USD pair:
### 1. Divergent Monetary Policy Paths
– The Federal Reserve remains committed to a hawkish stance, maintaining that inflationary pressures in the U.S. warrant continued policy tightening or at least keeping interest rates higher for longer.
– Recent remarks from Fed officials continue to highlight the data-dependent approach but with a bias toward further tightening if inflation remains resilient.
– The ECB, on the contrary, has softened its stance. While past interest rate hikes were intended to curb Eurozone inflation, the recent economic indicators suggest a flattening or even contraction in several sectors, particularly manufacturing.
– Market participants increasingly believe that the ECB may be nearing the end of its tightening cycle, or may pivot toward a more accommodative stance earlier than the Fed.
### 2. Weak Economic Data from the Eurozone
Economic reports out of the Eurozone have consistently underwhelmed, prompting further concern over the region’s growth prospects.
– **Germany**, as the largest economy in the bloc, has posted lackluster indicators in terms of industrial production, business sentiment (IFO index), and retail sales.
– **PMI data** for both manufacturing and services showed contractions or stagnation in key economies including France, Italy, and Germany.
– **Consumer confidence** across the Euro area remains subdued, limiting potential demand growth and inflationary pressures.
### 3. Strength in U.S. Data
– The U.S. economy continues to show signs of resilience, with steady job gains and improving GDP forecasts.
– The latest ISM Services PMI and Non-Farm Payroll (NFP) reports provided new support for the dollar, indicating broad economic strength.
– U.S. Treasury yields remain elevated, pushing capital toward dollar-denominated assets and driving further flows out of the Euro.
### 4. Geopolitical Tensions
– Risk aversion spurred by global tensions, especially in Eastern Europe and the Middle East, has prompted investors to move toward safe-haven assets like the U.S. dollar, further pressuring EUR/USD.
– Any major escalation in geopolitical instability may amplify demand for USD, while reducing investor interest in the Euro.
## Technical Analysis: The Key Level at 1.1650
The technical outlook for EUR/USD reveals a market that is approaching a decision point. The 1.1650 level stands out as a psychologically and technically significant area of support. A decisive breach of this level could trigger an acceleration in selling pressure.
### Overview of Technical Structure
– **Short-Term Bias**: Bearish
– **Momentum Indicators**: Negative bias across RSI and MACD on both 4-hour and daily charts; indicating sellers currently in control
– **Recent Price Action**: A series of lower highs and lower lows form a clear downtrend from the 1.1900 area in late July.
### Support Levels
– **1.1650**: Key medium-term support; last defended with a minor rebound, but pressure remains persistent
– **1.1600**: A round number and a logical next demand area if 1.1650 fails
– **1.1550**
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