The EUR/USD Pair: A Comprehensive Analysis of Recent Market Developments
Overview
- EUR/USD continues losing ground for the fifth straight day amid relentless USD buying.
- The Trump trade optimism and elevated US bond yields continue to underpin the buck.
- German political chaos and concerns over Trump’s protectionist tariffs weigh on the Euro.
The EUR/USD pair has experienced a downward trend for the fifth consecutive day, driven by the influence of the so-called Trump trade. This trade has been a significant factor behind the post-election rally of the US Dollar (USD). The USD Index (DXY) has reached its highest level since November 2023 due to expectations of economic growth resulting from President-elect Donald Trump’s policies.
Factors Affecting the Market
- Trump’s plans to increase tariffs on imports may accelerate inflation, impacting the Fed’s easing cycle.
- The US Consumer Price Index (CPI) indicates slower progress towards lowering inflation, potentially leading to fewer rate cuts next year.
- The rise in US Treasury bond yields supports the USD’s strength across various currencies.
The recent release of the US CPI data revealed a 0.2% increase in October and a 2.6% rise over the past twelve months. The core CPI, excluding food and energy, rose by 0.3% last month and 3.3% compared to the previous year. These figures suggest that the Fed might implement a third rate cut in December due to a softening labor market.
Expert Insights
- St. Louis Fed President Alberto Musalem highlights the rising risk of inflation and its impact on the central bank’s rate policies.
- Dallas Fed President Lorie Logan emphasizes caution in the Fed’s approach to rate cuts to avoid potential inflationary effects.
- Kansas Fed President Jeffrey Schmid comments on the uncertainty surrounding future rate cuts by the US central bank.
Investors are closely monitoring Fed Chair Jerome Powell’s upcoming statements for guidance on the future rate-cut trajectory, influencing near-term USD dynamics and impacting the EUR/USD pair.
Market Impact
- Political chaos in Germany and potential tariffs on European exports to the US contribute to Euro weakness.
- The EUR/USD pair hits a fresh year-to-date low amid these economic and political uncertainties.
The US economic calendar, featuring Weekly Initial Jobless Claims and the Producer Price Index (PPI), may further drive USD demand and create short-term trading opportunities for the EUR/USD pair.
Technical Analysis
The EUR/USD pair’s recent break below the previous year-to-date low suggests a downtrend continuation. While the RSI indicates oversold conditions, caution is advised for potential reversals. Further downside could lead to a test of the October 2023 swing low near the 1.0450-1.0445 region.
On the upside, resistance near the 1.0600 level may impede recovery attempts. A breach above 1.0700 could signal a possible bottom formation, indicating potential upward movement for the pair.
EUR/USD Daily Chart
Analysis Summary
The EUR/USD pair’s recent decline is driven by USD strength fueled by the Trump trade and high US bond yields. Concerns over inflation, potential tariffs, and political instability in Germany further weigh on the Euro. Additionally, upcoming US economic data and Fed statements will shape near-term market movements. Technical analysis suggests a bearish outlook for the EUR/USD pair, with resistance levels to watch for potential reversals. Overall, these factors highlight the significance of global events on currency markets and individual financial decisions.