EUR/USD extends recovery as US Durable Goods Orders decline steadily

• EUR/USD extends its upside to near 1.0830, but the downside bias remains firm due to multiple headwinds.
• Traders expect the ECB to announce a sizeable interest rate cut in December.
• The Fed is expected to pursue a gradual rate-cut cycle.

EUR/USD extends Thursday’s recovery to near 1.0830 in Friday’s North American session. The recovery move in the shared currency pair is driven by a retracement move in the US Dollar (USD). The US Dollar Index (DXY), which gauges Greenback’s value against six major currencies, extends correction slightly below 104.00. The US Dollar faces pressure after the release of the US Durable Goods Orders, which declined steadily by 0.8% in September, slower than estimates of -1.0%.

The near-term appeal of the US Dollar remains firm on multiple tailwinds, such as growing bets for the Federal Reserve (Fed) to follow a more gradual rate-cut cycle and rising expectations of former US President Donald Trump to win the presidential election against current Vice President Kamala Harris.

Investors' confidence in the Fed’s gradual policy-easing cycle is backed by upbeat Nonfarm Payrolls (NFP) and Retail Sales data for September and better-than-expected flash S&P Global PMI data for October, which pointed to sustainable economic growth.

Daily digest market movers: EUR/USD to be influenced by expectations for ECB likely rate cut size in December

• The Euro (EUR) continues to perform strongly on Friday after the release of Thursday's flash Hamburg Commercial Bank (HCOB) Eurozone Purchasing Managers Index (PMI) report for October. The single currency remains firm despite the preliminary PMI report showing that the Eurozone’s economic activity continued to contract, with the flash Composite PMI declining to 49.7 in October. Preliminary readings showed that activities in the manufacturing sector continued to contract, with manufacturing PMI below the 50 threshold that separates expansion from contraction for 28 months, and the service sector output expanded surprisingly at a slower pace. A continuous decline in the Eurozone business activity points to uncertainty over economic growth.
• Meanwhile, growing speculation for a larger-than-usual interest rate cut by the European Central Bank (ECB) in its next policy meeting in December is also expected to push back the Euro inside the woods. This year, the ECB has already reduced its Deposit Facility Rate three times by 25 basis points (bps) to 3.25%.
• Market expectations for the ECB to reduce its key borrowing rates by 50 bps in December have been boosted by dovish commentaries from a few policymakers who have highlighted risks of inflationary pressures remaining below the bank’s target of 2% due to fears of a downturn.
• This week, Governor of the Bank of Portugal and ECB policymaker Mario Centeno said that the option of a 50 bps rate cut in December is on the table. Centeno warned that downside risks to growth are accumulating.
• On the economic front, data released on Friday showed that the German IFO Business Climate, Current Assessment, and Expectations for October have come in better than expectations and prior releases. Historically, improving market sentiment points to a revival in economic conditions but the case appears to be unlikely due to weak business activity.

Technical Analysis: EUR/USD seeks establishment above 1.0800

EUR/USD holds recovery above 1.0800 in North American trading hours. However, the outlook of the major currency pair remains downbeat as it stays below the 200-day Exponential Moving Average (EMA), which trades around 1.0900.

The downside move in the shared currency pair started after a breakdown of a Double Top formation on the daily time frame near the September 11 low at around 1.1000, which resulted in a bearish reversal.

The 14-day Relative Strength Index (RSI) remains inside the 20.00-40.00 range, indicating a strong bearish momentum. However, a recovery move remains on the cards as conditions turn oversold.

On the downside, the major could see more weakness towards the round-level support of 1.0700 if it slips below the upward-sloping trendline (plotted from the October 3 low around 1.0450) at 1.0750. Meanwhile, the 200-day EMA near 1.0900, and the psychological figure of 1.1000 will be the key resistances for the pair.