FX.co ★ Eurozone economy may suffer terrible blow

Yet, the European currency remains in demand even after the publication of the Federal Reserve's hawkish meeting minutes. Luis de Guindos, Vice President of the European Central Bank, warned investors that they might be underestimating the risk of a more severe impact on the eurozone economy after a year of interest rate hikes and growing political tension.

"Further trouble in the Middle East is just one example of how geopolitics could yet upend hopes for a so-called soft landing where inflation is tamed without a major recession," Luis de Guindos said. "The outlook that markets are taking with respect to the evolution of the economy, I would say it is a little bit sanguine and optimistic," Guindos told Bloomberg Television. "There is a little bit of wishful thinking."

A recent ECB financial stability report stated that historical data suggested a soft landing scenario was impractical under current conditions. This seems to be prompting European policymakers to make cautious statements on interest rates, focusing on the state of the European economy.

Many traders are now betting that borrowing costs have peaked, as last month, the ECB paused its series of interest rate hikes after an unprecedented 10 consecutive increases.

Currently, the eurozone, which includes 20 countries, is on the verge of a moderate downturn, and recent data have been disappointing for both investors and eurozone policymakers. The European Commission stated last week that the eurozone might avoid recession, but this requires an improvement in consumer purchasing power leading to a modest economic recovery. The ECB's latest quarterly forecasts also supported this outlook. However, fresh data will be released at the December meeting, and it is uncertain what it will reveal.

European officials also assert that they have not yet discussed cutting rates, expecting inflation to return to the 2% target only in the second half of 2025. However, investors anticipate rate cuts to begin as early as April next year.

"I'm not going to discuss market bets, but I what can tell you is that our strategy is very clear in terms of communication: Data dependency and meeting by meeting and we'll see how things evolve," Guindos said. "I think that talk about rate cuts is a little bit premature." He reiterated that the path to reducing inflation could be uneven due to base effects, but he is confident that the ECB's target will be met.

Regarding the technical picture of EUR/USD, to maintain control, buyers should stay above 1.0890. Doing so could pave the way to 1.0925 and 1.0970. From that level, there is potential to reach 1.1005, but achieving this without support from major players will be quite challenging. The farthest target is located at 1.1400. If the pair declines, significant actions from major buyers could be seen around 1.0890. If no one steps in at that level, it might be wise to wait for a new low of 1.0860 or to consider going long from 1.0830.

Meanwhile, demand for the pound remains the same. A further increase could be expected after gaining control over 1.2550. Regaining this range will bring back hope for a recovery towards 1.2580, after which a sharper rise to around 1.2630 can be anticipated. If the pair falls, bears will attempt to take control of 1.2500. If they succeed, a breakout of this range will affect bulls' positions, pushing GBP/USD down towards a low of 1.2455 with the potential to touch 1.2410.