EUR/USD fell to a fresh 19-month low on Friday, and more weakness looks likely. Expectations for Fed policy, inflation-rate markets and technical signals all point lower level for EUR/USD, and together they should limit any rally.

US 2-year and 10-year yields rose sharply this week, and September 2027 SOFR futures prices fell significantly as investors priced in a more hawkish Fed, fueled largely by unexpectedly strong US CPI data. Bank of America reinforced that view by adding a 25bp hike at the January meeting to its forecast. It still expects hikes at the December and March meetings.

Inflation-rate markets reinforce the bearish case. US breakeven inflation rates and inflation-linked swap rates are rising across the 2-, 5- and 10-year tenors. That supports the idea that the Fed may need to raise rates more than markets previously expected.

The technical picture also points to more downside. Daily and monthly RSIs are falling but aren't oversold, so downward momentum remains. November's monthly inverted hammer candle and the recent break below the 50% retracement of the 1.0125-1.2084 rally add to the bearish tone. On Wednesday, EUR/USD also completed its consolidation of the drop from the August 21 high, which suggests the broader downtrend will persist.

Bears are likely to target support in the 1.0930/45 and 1.0725/40 zones for now, and a deeper decline can't be ruled out.
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(Christopher Romano is a Reuters market analyst. The views expressed are his own)