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Oversold signals are flashing, but analysts see no trigger that would end the single currency's slide.
EUR/USD is the most oversold it has been in a year, but the technical picture and the research both point to more downside before a lasting low forms.
"EUR/USD slipped on Monday, and the technical picture suggests traders holding long positions are unlikely to be rewarded. The pair hit a 15-month low of 1.1161 on October 5, and rebounds since then have been weak. Each attempt to climb toward the declining 10day moving average has drawn sellers, pushing the pair back toward that low," says LSEG.
Monday's selling took the Euro to Dollar rate through that 5 October low to 1.1154, before a recovery to 1.1187 today:
Above: EUR/USD at daily intervals with the 21-day moving average and RSI.
The Relative Strength Index (RSI), a momentum gauge where readings below 30 mark an oversold market, sits at 28 after bottoming near 19 earlier this month.
Spot trades 1.3% below its 21-day moving average at 1.1334, and PSL's modelling holds that a gap this wide must close, through either a bounce or a consolidation that lets the average catch up.
ING's short-term valuation model finds the euro among the cheapest G10 currencies, 1.5% to 2.5% below fair value, while net long dollar positioning has reached 24% of open interest.
Why Stretched Isn't Enough
"A clear macro or market catalyst is needed for a reversal, and we do not see one," says Francesco Pesole, FX Strategist at ING.
Pesole says Fed rate hike expectations are stickier than those for most other central banks, and weakness in global bond markets keeps demand high for the dollar as a liquid defensive currency.
LSEG reads the past week's sideways trade as a pause before the next move down, which would close the gap to the 21-day average without a rally.
"Another bearish signal is forming as EUR/USD consolidates its decline from the September 25 daily high. A pause like this within a downtrend is considered healthy because it gives sellers a chance to regroup before the next leg lower," says LSEG.
"Weakness in EUR has not quite stabilised; it could decline gradually toward 1.1115," says UOB in its 13 October technical note.
The Next Levels
"A test of 1.110 remains the risk for EUR/USD, even if we expect some stabilisation today," says Pesole.
The levels to watch:
• Support at 1.1154, Monday's low
• Support at 1.1115, UOB's one-to-three-week target
• Support at 1.11, the area ING and KBC both flag
• Resistance at 1.1220, the level UOB says must cap rebounds for its bearish view to hold
• Resistance at 1.1334, the 21-day moving average
ING this week lowered its EUR/USD forecast to 1.13 for the fourth quarter and the first quarter of 2027, a target that sits just below the 21-day average.
For GBP/EUR, ING expects EUR/GBP to hold a 0.84 to 0.85 range for several months, equivalent to 1.1765 to 1.1905 in Pound to Euro terms.
Wednesday's US inflation data is the next test, and ING notes a consensus of 0.2% month-on-month for core CPI already limits the scope for a dollar sell-off.
A close back above 1.1220 is needed to signal that the selling is exhausted; until then, 1.11 is the next stop.
Daniella Arcadipane, Senior Currency Specialist at Indigo
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