The Impact of the US Election on EUR/USD Exchange Rate

On Wednesday, the EUR/USD exchange rate experienced a significant drop to five-month lows near 1.0680 following the outcome of the US presidential election. Here are the key points to consider:

  • US Dollar Strength: The US Dollar surged to fresh highs after Donald Trump’s victory, pushing the EUR/USD pair lower.
  • Fed Interest Rate Cut: The Federal Reserve is expected to reduce interest rates by 25 basis points, impacting the currency pair’s movement.

Market Analysis

EUR/USD broke below the 200-day moving average near 1.0870, signaling potential further downside. The Dollar Index (DXY) rose above 105.00, adding pressure on risk-related assets.

The US Dollar’s strength was supported by rising US yields and falling German bund yields, highlighting the divergence in economic conditions between the US and Europe.

Policy Decisions

The Fed is likely to cut rates due to softening inflation and a cooling labor market, while the ECB has recently reduced its deposit rate. The outcome of these central bank decisions will impact the EUR/USD exchange rate.

A Trump victory could lead to tariffs on European and Chinese goods, a looser fiscal policy, and inflationary pressures, affecting the Fed’s easing cycle.

Technical Outlook

EUR/USD could retest the November low of 1.082 and the June low of 1.0666, with resistance at 1.0925 and 1.1000. Maintaining trade below the 200-day SMA at 1.0869 could lead to further weakness.

On the four-hour chart, initial support is at 1.0682, followed by 1.0666 and 1.0649, with the RSI indicating oversold conditions.

Analysis and Conclusion

The US election outcome and central bank policies have significant implications for the EUR/USD exchange rate. A stronger US Dollar, potential rate cuts, and geopolitical factors all contribute to the pair’s volatility.

Investors should monitor key levels and technical indicators to navigate market uncertainty and position themselves accordingly. Understanding these factors can help individuals make informed decisions about their financial future and adapt to changing market conditions.

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