- EUR/USD is severely affected with Trump’s victory in the US presidential election looming.
- The Fed is expected to cut interest rates again on Thursday, but by a smaller size of 25 bps.
- The Euro underperforms across the board as concerns about Eurozone economic growth have deepened.
EUR/USD recovers slightly to 1.0750 after plummeting near 1.0700 in the European session on Wednesday, the lowest level in more than four months. The major currency pair is severely affected as Republican candidate Donald Trump appears to wrest the Senate from the Democrats, with the Republican Party (GOP) gaining an unconquerable lead in key states, according to The Associated Press. The agency shows that Trump is on the verge of winning 270 seats, a level the party needs to cross to form the government.
Meanwhile, Trump has declared victory over his Democratic rival Kamala Harris, according to Sky News.
A clear Trump victory in sight keeps the US Dollar (USD) in a favorable position. The US Dollar Index (DXY), which measures the value of the Dollar against six major currencies, rises near 105.30. The market action clearly shows that Trump’s victory is favorable for the US dollar, which was already anticipated as the Republican candidate promised to increase tariffs on imports and reduce corporate taxes. A scenario that will boost general business activity and labor demand and increase inflationary pressures.
However, the outlook is unfavorable for the currencies of economies such as the Eurozone, the United Kingdom (UK), China and Canada, which are important trading partners of the United States (US). Trump’s protectionist policies will directly impact the export sector of the aforementioned economies, increasing the risks of an economic recession.
Going forward, investors will also focus on the Federal Reserve’s (Fed) monetary policy decision, which will be announced on Thursday. According to the CME’s FedWatch tool, traders have priced in a 25 basis point (bp) interest rate cut, pushing rates down to the 4.50%-4.75% range. This would be the second consecutive interest rate cut by the Fed. However, the size of the cut will be smaller than the 50 bp announced at the September meeting.
Investors will also focus on Fed Chair Jerome Powell’s press conference for clues about the impact of Trump’s victory on the path of interest rates and the inflation outlook.
Daily Market Summary: EUR/USD Hit by US Dollar Bullishness, Euro Weakness
- EUR/USD faces strong selling pressure due to the outperformance of the US Dollar and the sharp depreciation of the Euro (EUR) against other major currencies. The outlook for the Euro has weakened as market participants expect that the implementation of Trump’s protectionist policies will significantly harm European economic growth.
- According to the Dutch bank, Trump’s tariffs would shave about 1.5 percentage points from European growth, translating into a potential economic loss of €260 billion based on Europe’s estimated 2024 GDP of €17.4 trillion. euros.
- If Europe’s growth falters under Trump’s tariffs, the European Central Bank (ECB) could be forced to respond aggressively, cutting rates to near zero by 2025, according to Euronews.
- Trump’s victory would likely force the ECB to cut its deposit facility rate by a larger-than-usual 50 bp at its next policy meeting in December. This would be the ECB’s fourth interest rate cut this year.
Technical Analysis: EUR/USD marks new four-month low near 1.0700
EUR/USD falls rapidly near the key support of 1.0700. The outlook for the major currency pair weakens as it breaks below an ascending trend line around 1.0750, which is drawn from the April 16 low around 1.0600
The declining 50-day EMA near 1.0930 suggests a firm bearish trend.
Furthermore, the 14-day Relative Strength Index (RSI) retreats below 40.00, suggesting a resumption of bearish momentum.
Looking down, the shared currency pair could fall to the yearly low (YTD) of 1.0600. To the upside, the round resistance level of 1.0800 will act as a key barrier for the Euro bulls.
The Euro FAQs
The Euro is the currency of the 19 countries of the European Union that belong to the eurozone. It is the second most traded currency in the world, behind the US dollar. In 2022, it accounted for 31% of all foreign exchange transactions, with an average daily turnover of more than $2.2 trillion per day. EUR/USD is the most traded currency pair in the world, accounting for an estimated 30% of all transactions, followed by EUR/JPY (4%), EUR/GBP (3%) and EUR/AUD (2 %).
The European Central Bank (ECB), headquartered in Frankfurt, Germany, is the reserve bank of the eurozone. The ECB sets interest rates and manages monetary policy. The ECB’s primary mandate is to maintain price stability, which means controlling inflation or stimulating growth. Its main tool is the increase or decrease in interest rates. Relatively high interest rates (or the expectation of higher rates) tend to benefit the euro and vice versa. The Governing Council of the ECB makes decisions on monetary policy at meetings held eight times a year. Decisions are made by the directors of the Eurozone’s national banks and six permanent members, including ECB President Christine Lagarde.
Eurozone inflation data, measured by the Harmonized Index of Consumer Prices (HICP), are an important econometric indicator for the euro. If inflation rises more than expected, especially if it exceeds the ECB’s 2% target, it forces the ECB to raise interest rates to bring it back under control. Relatively high interest rates compared to their counterparts tend to benefit the euro, making the region more attractive as a place for global investors to park their money.
The published data measures the health of the economy and may have an impact on the euro. Indicators such as GDP, manufacturing and services PMIs, employment and consumer confidence surveys can influence the direction of the single currency. A strong economy is good for the Euro. Not only does it attract more foreign investment, but it may encourage the ECB to raise interest rates, which will directly strengthen the euro. Otherwise, if economic data is weak, the Euro is likely to fall. Economic data for the four largest eurozone economies (Germany, France, Italy and Spain) are especially significant, as they represent 75% of the eurozone economy.
Another important data that is published about the Euro is the trade balance. This indicator measures the difference between what a country earns from its exports and what it spends on imports during a given period. If a country produces highly in-demand export products, its currency will gain value simply from the additional demand created by foreign buyers seeking to purchase those goods. Therefore, a positive net trade balance strengthens a currency and vice versa in the case of a negative balance.
Source: Fx Street
I am Joshua Winder, a senior-level journalist and editor at World Stock Market. I specialize in covering news related to the stock market and economic trends. With more than 8 years of experience in this field, I have become an expert in financial reporting.
