• Manufacturing activity in the Eurozone fell at its fastest pace this year in September.

• Eurozone inflation fell below 2% in September, weighing on the euro.

• Market participants are pricing an 85% chance that the ECB will cut rates in October. 

The EUR/USD outlook shows a freefalling euro after a set of downbeat business activity and inflation figures from the Eurozone. At the same time, the dollar was on the front foot after Powell’s speech diminished the prospects of another super-sized rate cut in November.

–Are you interested in learning more about Canada forex brokers? Check our detailed guide-

Eurozone data on Tuesday revealed that manufacturing activity fell at its fastest pace this year in September, indicating a drop in demand. The Eurozone manufacturing PMI dropped to 45.0, well below the 50 mark that separates expansion from contraction. Weaker economic activity pressures the European Central Bank to lower borrowing costs. 

A separate report showed that inflation in the bloc fell below 2% in September, weighing on the euro. The CPI eased from 2.2% in August to 1.8%, coming in below forecasts of a 1.9% increase. Furthermore, services inflation cooled slightly from 4.1% to 4.0%.

The easing inflation has given policymakers the confidence to lower borrowing costs in June and September. Moreover, market participants are pricing an 85% chance that the ECB will cut rates in October. 

On the other hand, the Fed implemented its first rate cut in September. The 50-bps cut raised bets for another such move in November. However, on Monday, Fed Chair Powell pushed back these expectations. He said moving forward, the central bank would likely implement quarter-point cuts. As a result, the chances of a 50-bps cut in November fell from 53.3% to 35.4%.

EUR/USD key events today

• ISM Manufacturing PMI
• JOLTS Job Openings

EUR/USD technical outlook: Bears take over after RSI divergence

On the technical side, the EUR/USD price has broken out of its bullish channel, with bears in the lead. Moreover, the price is on the verge of making a new low below the 1.1100 support level. The price trades well below the SMA with the RSI in the oversold region. 

–Are you interested in learning more about social trading platforms? Check our detailed guide-

Initially, the RSI had made a bearish divergence when EUR/USD paused at the 1.1200 resistance. The divergence was a clear signal that bulls were exhausted, and it played out when the price broke below its channel support. Given the solid bearish bias, the price will likely soon reach the 1.1050 support level.

Looking to trade forex now? Invest at eToro!

68% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you can afford to take the high risk of losing your money.