The EUR/USD Dives to New Lows as the US Dollar Gains Strength
EUR/USD faced significant challenges on Thursday as it struggled to maintain its recent momentum, ultimately weakening further and hitting new yearly lows near 1.0460. This downward pressure was largely driven by the US Dollar trading on a strong note and reaching year-to-date tops.
Factors Contributing to EUR/USD Decline
- The US Dollar Index (DXY) surged to a new YTD top around 107.15.
- Easing geopolitical tensions and the revival of the “Trump trade” bolstered the USD.
- A bounce in US yields across the spectrum added to the Dollar’s strength.
Monetary Policy and Central Bank Actions
The Federal Reserve (Fed) recently lowered its benchmark interest rate by 25 basis points, aiming to steer inflation towards its 2% target. Despite this, cracks in the labor market are becoming apparent, even with historically low unemployment rates.
On the other hand, the European Central Bank (ECB) has maintained a cautious approach, pausing further rate adjustments and waiting for more data clarity. Signs of underlying inflationary pressures persist in the euro area, with negotiated wage growth rising to 5.42% in the third quarter.
Outlook for EUR/USD
Looking ahead, the potential for renewed tariffs on European or Chinese goods could reintroduce inflationary risks in the US. If the Fed maintains a cautious or hawkish stance, the USD may continue to strengthen, keeping EUR/USD under pressure.
Technical Analysis of EUR/USD
Further losses could drive EUR/USD down to its 2024 low of 1.0461. Immediate resistance is seen at the 200-day SMA at 1.0860, with further levels at the 55-day SMA at 1.0899 and the November high at 1.0936.
The short-term technical outlook remains bearish as long as EUR/USD stays below the 200-day SMA. The four-hour chart suggests a continuation of the bearish trend, with initial resistance at 1.0609, followed by 1.0653 and 1.0726.
Key Takeaways for Investors
- EUR/USD weakened to new yearly lows near 1.0460.
- The US Dollar strengthened, reaching YTD tops.
- Monetary policies of the Fed and ECB impact currency movements.
- Potential tariffs and central bank actions may influence future trends.