EUR/USD: Recent Bounce a Selling Opportunity as Downtrend Set to Resume

investing.com:

The recent rebound in the EUR/USD currency pair appears likely to be nothing more than a temporary correction within the ongoing downtrend that began in mid-July as, longer-term, the fundamental factors pushing the US dollar higher haven't changed, despite of all the recent noise.

Although a rate hike at the upcoming Fed meeting two weeks from today remains improbable, there is a slightly greater than 40% probability of one occurring in December. On the other hand, however, the European Central Bank's interest rate hike cycle seems to have plateaued, at least in terms of verbal commitments. The disparity in treasury yields helps reflect that panorama, putting even more pressure on the European currency.

As such, if the downward trend persists, sellers are likely to target levels below 1.04. Alongside economic considerations, the escalation of the Israel-Hamas conflict creates a climate of global risk aversion, theoretically driving capital inflows into the US dollar.

The latest US data further bolsters scenarios that are conducive to a stronger US dollar. The US inflation data released last Thursday closely aligns with forecasts, with year-on-year consumer inflation seeing only a marginal 0.1% increase.

Aside from price dynamics, several other indicators may favor sellers in the EUR/USD market. For instance, data released on Tuesday for retail sales and industrial production surpassed expectations, diminishing the likelihood of an economic downturn and concurrently tempering inflation's ascent toward its target.

A series of statements from Fed officials Christopher Waller and Thomas Barkin, among others, indicate a lack of consensus on the monetary policy in the next few quarters, as the prevailing narrative is that we