- EUR/USD faces resistance near 1.0600 on Tuesday as investors see more room for the dollar to rise.
- ECB officials' focus has been on maintaining growth rather than containing price pressures.
- President Trump's policies are expected to boost U.S. inflation and economic growth.
EUR/USD struggled to extend Monday's recovery above near-term resistance at 1.0600 and edged lower in European trading on Tuesday. Major currency pairs fell near last week's year-to-date low of 1.0500 as European Central Bank (ECB) policymakers grow increasingly concerned about eurozone economic growth with firm expectations of a possible trade war with the US His recovery seems to be progressing smoothly. (USA) than to control inflation.
Market participants are concerned that President-elect Donald Trump's protectionist policies could undermine the eurozone's growth potential. A sweeping increase in import tariffs by the United States would have a negative impact on all economies, but as President Trump said during his campaign, the eurozone would “pay a heavy price.” The impact will be even more severe. “Because we didn't buy enough American exports.
“Protectionist trends are disrupting global supply chains vital to European industry, threatening the growth potential, competitiveness and financial resilience of companies,” ECB Supervisory Director Claudia Buch told the European Parliament on Monday. It could have a negative impact.”
Concerns over President Trump's foreign policy have led to deeper debate over whether the European Central Bank should lower its budget by 25 or 50 basis points at its December meeting. ECB policymaker and Central Bank of Ireland Governor Gabriel Makhlouf said on Monday that it was a bit far from saying that a December interest rate cut was “on the way” and that the central bank had “a fairly overwhelming ” said he needed proof. 50bps reduction.
During the European meeting, Eurostat will publish a revised version of the Harmonized Index of Consumer Prices (HICP) for October. Inflation data is expected to remain unchanged, with headline HIPC at 2% y/y and core HIPC at 2.7% y/y.
Daily Digest Market Trends: EURUSD struggles to sustain recovery while broader outlook for USD remains solid
- Last week, EUR/USD managed to gain some demand around 1.0500 as the US dollar (USD) faced a slight correction after hitting a new year-to-date high, with the US dollar index (DXY) falling from 107.00. The outlook for major currency pairs remains subdued, with market participants seeing further room for growth for the dollar on hopes that President Trump's policies will boost inflation and economic growth.
- “Although a period of strength is likely in the short term, we have revised upward our forecast for the US dollar and now expect it to appreciate another 5% by the end of 2025,” said analysts at Capital Economics. . “This is largely based on the view that the U.S. economy will continue to outperform major economies as President-elect Donald Trump pursues the core tariff policies he proposed during the campaign,” the economists said. he added.
- In a scenario of high inflation and strong growth, the Fed would cut interest rates less, resulting in greater policy divergence from the ECB. Meanwhile, traders held back on some of their bets that the Fed would support a rate cut in December. There is a 62% chance that the central bank will cut its key borrowing rate by 25 basis points to a range of 4.25-4.50%, down from 77% a month ago, according to the CME FedWatch tool.
- This week, investors will focus on the preliminary S&P Global Purchasing Managers Index (PMI) for November, which will be released on Friday. The PMI report is expected to show overall private sector activity improving in the United States, while stabilizing in the euro area. Business sentiment is expected to improve as it becomes clear that Trump will return to power.
Technical analysis: EUR/USD has resistance near 1.0600
EUR/USD rebounded from last week's key support at 1.0500, but struggled to extend its recovery above 1.0600 on Tuesday. The outlook for major currency pairs remains bearish as all short- to long-term exponential moving averages (EMAs) are declining.
The 14-day Relative Strength Index (RSI) is hovering in a bearish range of 20.00 to 40.00, providing evidence of further weakness in the near term.
Looking down, we expect the pair to fall below the year-to-date low of around 1.0500 and find a cushion near the October 2023 low of around 1.0450. On the contrary, round-level resistance at 1.0600 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, as it makes 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.
