The euro is facing significant pressure against the US dollar, driven by a combination of economic and geopolitical factors. Eurozone inflation surged to 3.8% in September, up from 3.2% in August, with energy prices leading the increase at 18.9% year-on-year. Meanwhile, US consumer price inflation also accelerated to 3.7% in September from 3.4% in August, supported by a 5.2% rise in energy prices and a 9.1% jump in gasoline costs.
The widening interest rate differential between the US and the Eurozone is further weakening the euro. The 10-year US Treasury yield has climbed above 5.30%, making dollar-denominated assets more attractive and supporting capital inflows to the US. The Federal Reserve's hawkish stance contrasts with the European Central Bank's more cautious approach, adding to the pressure on the EUR/USD pair.
Geopolitical risks, particularly the ongoing Middle East conflict, are also contributing to the euro's decline. The uncertainty is boosting demand for the US dollar as a safe-haven currency. Additionally, France's political crisis and budget negotiations are adding to the downward pressure, with forecasts suggesting EUR/USD could fall to 1.05 in a worst-case scenario. However, UBS predicts a recovery to 1.16 by year-end.
Technical analysis indicates that EUR/USD remains in a downtrend, with key support levels at 1.1178, 1.1083, and 1.0888. A break below these levels could signal further declines. Conversely, a break above resistance at 1.1270 might extend the correction towards 1.1379. The upcoming Fed and ECB meetings later this month will be critical in determining the pair's next move.