Euro-Dollar Exchange Rate Approaches Key Support Level Amid Dollar Rally
The euro-dollar exchange rate is nearing a significant support level that could potentially slow down the dollar's advance. The current rate of 1.1386 is closing in on the 1.1450 mark, which capped the downside in July and again in mid-September.
A hold at this level would ease the downward pressure that has built since August 19, when EUR/USD peaked near 1.1700. However, a break through it opens up the possibility of a further decline to 1.1325, the June low, with no obvious support until then.
The move is largely driven by the dollar story, with robust US growth sending US yields higher. The September composite PMI came in at 58.4, lifting yields and supporting the USD. Markets are now pricing a more than 50% chance of a Federal Reserve hike in October, with three moves priced by next June.
The ECB's side offers little help to the euro despite its recent weakness. Expectations for further ECB rate hikes can shore up the euro, but markets price around a 50% chance of an ECB hike at the October meeting.