- Trump's trade policies continue to support further gains for the US dollar against other major currencies.
- As a result, selling of the EUR/USD currency pair has increased, with losses extending to the support level of 1.0628, the lowest for the currency pair since last April, and it is stabilizing near its losses at the time of writing this analysis.
According to the forex market trading, the euro will remain weak, as traders closely monitor economic and monetary developments and the political situation in Germany. also, expectations that the European Central Bank will cut interest rates more aggressively than the US Federal Reserve are putting pressure on the common currency. Meanwhile, the US dollar is gaining strength amid expectations that Donald Trump's policies may increase inflation, which may limit the ability of the US Federal Reserve to reduce borrowing costs. In contrast, the European Central Bank is expected to implement a 25-basis point rate cut in December, with markets pricing in a cut to 2% by June.
On the political front, German Chancellor Olaf Scholz has expressed openness to bringing forward a parliamentary vote of confidence several weeks before Christmas, which could pave the way for early elections.
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European concerns over Trump policy:
Trump wants to go further with tariffs in China (60%). However, China is another important market for high-quality exports in the eurozone, meaning the bloc’s economy is also exposed to this trend. There is a chance that the “Trump trade” will be paused as markets await details from Trump. We know that Trump is a negotiator at heart, and there is strategic power in creating uncertainty; as he rules, this strengthens his negotiating position. If Trump is open to negotiating with China and the EU, the worst-case scenario may not happen. Consequently, this would allow the euro to rise.
EUR/USD Technical Analysis and Forecast:
The EUR/USD pair has broken below the 200-day moving average (DMA) last Monday, which was supposed to be a strong support layer that would support the extension of the recovery that had been steadily increasing since October 23. But then came the results of the US elections, which showed a clear victory for Donald Trump and his Republican Party, in a "red sweep" that analysts say unequivocally supports the US dollar's outlook. As is well known, the euro price is particularly affected by Trump's new agenda, which could involve a comprehensive 20% increase in global import tariffs. The eurozone economy relies heavily on the export of goods, meaning Trump's protectionist agenda poses a particular challenge. Technically, the EUR/USD pair broke below the 200-day moving average last Wednesday, indicating that the outlook has undergone a sudden shift in favour of the US dollar's strength. The next target for the currency pair is the June lows at 1.0665, where some remaining support may exist. The stronger support is 1.0570. From there, technical indicators will move towards oversold levels.
In general, if the market waits until January 2025 to decide, the EUR/USD pair could consolidate around 1.0665 and even rebound to the 200-day moving average at 1.0868. However, there is still some time before Trump enters the White House, and we believe that this means that the balance of probabilities is in favour of further weakness in the EUR/USD.
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