EUR/USD fell nearly 0.50% on Wednesday after hotter US inflation data pushed the US Dollar to fresh year-to-date highs above 102.50 and reinforced expectations of further Federal Reserve tightening. The pair was last near 1.1145 after hitting 1.1113 intraday, its lowest level since May 2025. CME FedWatch pricing shifted sharply: the implied probability of an October 27-28 rate hike rose to 43% from 22% pre-release, while the odds of a December hike were near 95%. TD Securities now forecasts a 0.36% m/m increase in core PCE.
The euro also faced pressure from France’s fiscal and political backdrop. Technically, the pair has been under sustained selling since mid-August after failing at 1.1700, and it has moved below key Simple Moving Averages, with the 50-day at 1.1481, the 100-day at 1.1479 and the 200-day at 1.1588 all above spot. Momentum gauges remain bearish: RSI sits around 26, MACD is below zero and ADX is rising near 53. Resistance is seen at 1.1200 and 1.1350, then 1.1483-1.1489 and 1.1591; support starts at 1.1150, with 1.1000 below.
Positioning For Further Downside In EUR/USD
We should position for continued downward pressure on the EUR/USD over the coming weeks as market pricing for Federal Reserve rate hikes intensifies. With futures markets now pricing in a 43% probability of a rate hike at the October 27-28 meeting and nearly 95% for December, short-side exposure via options or put options remains the most attractive strategy. Buying downside protection while implied volatility is elevated allows us to capture further moves toward the 1.1000 psychological mark.
Given that the pair is trading below key moving averages, including its 50-day and 200-day lines, rally attempts are likely to be met with aggressive selling. Historically, when the Average Directional Index rises above 50 alongside an RSI below 30, currency pairs often experience a brief period of consolidation before resuming the primary trend. We can look to sell short-term call options near immediate resistance around 1.1200 to fund long put positions targeting sub-1.1100 levels.
Risk Management And The Role Of Policy Divergence
Beyond the strong U.S. economic data and persistent core PCE inflation, political and fiscal uncertainty in France continues to weigh heavily on the Euro. European Central Bank policy expectations are decoupling from the Fed, creating a widening rate differential that favors the U.S. Dollar. We suggest maintaining a strict risk management framework with stop-loss orders placed just above the 1.1350 resistance zone in case of short-covering bounces.
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