- With Trump's imminent victory in the US presidential election, the EUR/USD pair has taken a big hit.
- The Fed is expected to cut rates again on Thursday, but by 25 basis points.
- The euro has generally underperformed amid growing concerns about the eurozone's economic growth.
EUR/USD plunged to near 1.0700 in European trading on Wednesday, before recovering slightly to 1.0750, its lowest level in four months. According to the Associated Press, major currency pairs have taken a big hit as Republican candidate Donald Trump is expected to take the Senate from the Democrats, giving the Republican Party an invincible lead in key battleground states. Ta. The agency shows Trump is within striking distance of winning the 270 seats he needs to form a government.
Meanwhile, Trump declared victory over Democratic rival Kamala Harris, according to Sky News.
The U.S. dollar (USD) remains in a favorable position as Trump's clear victory looms. The US dollar index (DXY), which measures the value of the US dollar against six major currencies, has risen to around 105.30. Market movements clearly indicate that Trump's victory is favorable for the US dollar, as was already expected given the Republican candidate's promise to raise import duties and lower corporate taxes. A scenario in which overall business activity and labor demand increases, increasing inflationary pressures.
However, this plan is unfavorable for the currencies of economies such as the euro zone, the United Kingdom (UK), China, and Canada, which are major trading partners of the United States (US). President Trump's protectionist policies will have a direct impact on the export sectors of these countries, increasing the risk of economic downturn.
Going forward, investors will also be closely watching the Federal Reserve's monetary policy decisions, which will be announced on Thursday. Traders are pricing in a 25 basis point (bp) cut, which would bring rates down to a range of 4.50-4.75%, according to the CME FedWatch tool. This is the second consecutive rate cut by the Federal Reserve. However, the scale of the rate cut will be lower than the 50bp announced at the September meeting.
Investors will also be watching Fed Chairman Jerome Powell's press conference for clues about the impact of Trump's victory on the path to interest rates and the outlook for inflation.
Daily Digest Market Trends: EUR/USD affected by USD strength and EUR weakness
- EUR/USD is facing severe selling pressure due to the outperformance of the US dollar and the sharp decline of the euro (EUR) against other major currencies. The outlook for the euro has worsened as market participants expect President Trump's implementation of protectionist policies to significantly damage economic growth in Europe.
- According to the Dutch bank, President Trump's tariffs could reduce European growth by about 1.5 percentage points, resulting in an economic loss of 260 billion euros, based on Europe's estimated 2024 GDP of 17.4 trillion euros. be.
- According to Euronews, if President Trump's tariff policies slow European growth, the European Central Bank (ECB) may be forced to take aggressive measures, such as lowering policy interest rates to near zero by 2025. .
- Trump's victory will likely force the ECB to cut its deposit facility interest rate by a steeper 50 basis points than usual at its next monetary policy meeting in December. This is the fourth interest rate cut by the ECB this year.
Technical analysis: EUR/USD hits a 4-month low near 1.0700
EUR/USD quickly fell to the key support near 1.0700. The outlook for major currency pairs weakens once they break below the upward trend line around 1.0750, which was plotted from the April 16 low around 1.0600.
The declining 50-day exponential moving average (EMA) near 1.0930 suggests a solid bearish trend.
Additionally, the 14-day Relative Strength Index (RSI) is below 40.00, suggesting that bearish momentum is resuming.
On the downside, the common currency pair could fall to a year-to-date low of 1.0600. On the upside, resistance at the 1.0800 round level will be a key barrier for euro bulls.
Euro Frequently Asked Questions
The euro is the currency of the 19 European Union countries that belong to the euro area. It is the second most traded currency in the world after the US dollar. In 2022, Accounted for It accounts for 31% of all foreign exchange transactions and has an average daily trading volume of over $2.2 trillion. EUR/USD is the most frequently traded currency pair in the world. accounting An estimated 30% discount on all transactions, followed by EUR/JPY (4%), EUR/GBP (3%) and EUR/AUD (2%).
The European Central Bank (ECB), located in Frankfurt, Germany, is the reserve bank of the euro area. The ECB sets interest rates and controls monetary policy. The ECB's main task is to maintain price stability, which means controlling inflation or stimulating growth. The main means is to raise or lower interest rates. Relatively high interest rates, or expectations of rising interest rates, usually benefit the euro and vice versa. The ECB Governing Council decides monetary policy at its eight annual meetings. Decisions will be made by the heads of the euro zone national banks and the six permanent members of the ECB, including ECB President Christine Lagarde.
Eurozone inflation data, measured by the Harmonized Index of Consumer Prices (HICP), is an important econometric indicator for the euro. If inflation rises more than expected, especially above the ECB's 2% target, the ECB will mandate interest rate hikes to rein in inflation. Relatively high interest rates compared to other countries typically benefit the euro, making the region more attractive to global investors as a place to park their funds.
The data release will gauge the health of the economy and could have an impact on the euro. Indicators such as GDP, manufacturing and services PMIs, employment, and consumer sentiment surveys can all influence the direction of the single currency. A strong economy is good for the euro. Not only would that attract more foreign investment, but it could also prompt the ECB to raise interest rates, which could directly lead to a stronger euro. Otherwise, if economic indicators are weak, the euro is likely to weaken. Economic data for the euro area's four largest economies (Germany, France, Italy, and Spain) is particularly important, as they account for 75% of the euro area economy.
Another important data regarding the euro is the trade balance. This indicator measures the difference between what a country earns from exports and what it spends on imports over a given period of time. If a country produces highly sought-after export goods, the value of its currency increases purely due to the additional demand generated from foreign buyers seeking to purchase these goods. Therefore, if the net trade balance is positive, the currency strengthens, and vice versa if it is negative.
