The Impact of Trump’s Policies on EUR/USD
EUR/USD tumbles to near Year-To-Date (YTD) low of 1.0600 in Tuesday’s North American session. The major currency pair continues to face intense selling pressure on heightened concerns over the Eurozone export sector outlook, given that President-elect Donald Trump vowed to raise import tariffs by 10% in his election campaign.
Reasons Behind the Decline:
- Trump’s protectionist policies may significantly weigh on the Eurozone export sector.
- Market experts believe Trump’s victory is favorable for the US but worrisome for their trading partners.
- German political uncertainty and potential weakness in exports add to EUR weakness.
ECB’s Response and Interest Rate Cut Expectations
The collapse of the German three-party coalition and the potential impact of Trump’s policies are expected to be borne by the European Central Bank (ECB). Analysts predict a 50 bps interest rate cut in December to support the Eurozone economy.
Key Points:
- German political turmoil and weak exports put pressure on the ECB.
- ECB Governing Council member Olli Rehn hints at possible rate cuts.
- Eurozone economic sentiment data shows weaker outlook for the region.
US Dollar Strength and Trump Trades
EUR/USD is also affected by the strength of the US Dollar, driven by optimism over Trump’s policies. The Greenback’s value against major currencies continues to rise, impacting the EUR/USD pair.
Factors Driving USD Strength:
- Optimism over Trump’s policies boosting labor demand and business investment.
- JPMorgan raises terminal rate forecast, expecting Fed rate cuts beginning in December.
- US inflation data and Fed policy decisions to influence USD performance.
Technical Analysis of EUR/USD
EUR/USD extends its losing streak, facing bearish momentum with a potential downside to 1.0500. Technical indicators suggest further decline in the pair, with key levels to watch for both Euro bulls and bears.
Technical Outlook:
- 20-day EMA indicates a bearish trend for EUR/USD.
- RSI in bearish range supports the downside momentum.
- Psychological support at 1.0500 and resistance at 1.0700 for the pair.
Fed FAQs – Understanding US Monetary Policy
Monetary policy in the US, shaped by the Federal Reserve (Fed), plays a crucial role in influencing the value of the US Dollar. The Fed’s decisions on interest rates impact inflation, employment, and economic growth, affecting currency performance.
Key Facts About the Fed:
- The Fed adjusts interest rates to achieve price stability and full employment.
- FOMC meetings determine monetary policy decisions based on economic conditions.
- Quantitative Easing (QE) and Quantitative Tightening (QT) are tools used by the Fed in extreme situations to stimulate or tighten credit flow.