EUR/USD: Factors Driving the Pair Lower
The EUR/USD pair has been on a downward trend, hitting a nearly seven-month low, around 1.0620, due to a combination of factors. Let’s dive into the key reasons behind this decline:
1. USD Strength from Trump-Related Trades
- The US Dollar (USD) has been benefiting from post-election rally expectations that President-elect Donald Trump’s protectionist policies will boost inflation and limit the Federal Reserve’s ability to ease monetary policy.
- Traders are currently pricing in a 65% chance of a 25-basis-points rate cut at the next FOMC meeting, supporting elevated US Treasury bond yields and strengthening the USD against the Euro.
2. German Political Uncertainty
- Political turmoil in Germany, the Eurozone’s largest economy, has added pressure on the Euro.
- Chancellor Olaf Scholz’s decision to fire Finance Minister Christian Lindner and the possibility of a snap election have created uncertainty, leading to a downside risk for the EUR/USD pair.
3. Trump Tariff Worries
- Europe faces potential tariffs on exports to the US under a second Trump presidency, further dampening sentiment towards the Euro.
- These concerns, combined with the political instability in Germany, are driving flows away from the shared currency and towards the USD.
Market Outlook and Technical Analysis
Looking ahead, market participants will focus on upcoming events that could influence the EUR/USD pair:
- Speeches by influential FOMC members during the US session.
- US consumer inflation data release on Wednesday and Fed Chair Jerome Powell’s speech on Thursday.
From a technical perspective:
- The Relative Strength Index (RSI) suggests a potential support level near 1.0600, with further downside targets at 1.0540 and 1.0500.
- Resistance levels to watch include 1.0660, 1.0700, and 1.0725-1.0730, with upside potential towards 1.0770, 1.0800, and 1.0860-1.0870.
EUR/USD Daily Chart Analysis
Analysis of the EUR/USD Pair
The EUR/USD pair’s decline is driven by a combination of USD strength from Trump-related trades, German political uncertainty, and worries about potential Trump tariffs on European exports. These factors have created a bearish sentiment towards the Euro, leading to a multi-month low against the USD.
Looking ahead, upcoming events like FOMC speeches, US inflation data, and Powell’s speech will impact market expectations and determine the next direction for the pair. From a technical standpoint, support levels near 1.0600 and resistance levels at 1.0660 and 1.0700 will be crucial in guiding future price movements.
For traders and investors, it is essential to monitor these developments closely and stay informed about the evolving market dynamics to make informed decisions regarding the EUR/USD pair and their overall investment strategies.