EUR/USD Price Analysis – Nov 08, 2024
Daily Price Outlook
During the European trading session, the EUR/USD currency pair struggled to maintain momentum and slipped to around the 1.0789 level, hitting an intra-day low of 1.0761. This dip could be linked to the strength of the US dollar, which got a boost after Donald Trump’s victory in the US presidential election. Many believe that Trump's win is pushing the dollar higher due to his promises of raising import tariffs by 10% and cutting corporate taxes.
On the flip side, the euro is under pressure as investors are concerned about the Eurozone's economic future, with factors like Trump's win, political instability in Germany, and worries about inflation staying below the European Central Bank's target.
EUR/USD Pressure Due to Eurozone Economic Worries, ECB Rate Cuts, and Political Instability
On the EUR front, the shared currency (EUR) is facing pressure due to its underperformance against major peers. Investors are concerned about the Eurozone’s economic outlook, which has been worsened by Trump’s victory in the US, as well as, the collapse of Germany’s three-party coalition, and fears that inflation will stay below the European Central Bank’s (ECB) target of 2%.
However, the US’s plan to raise tariffs could hurt the Eurozone’s export sector, potentially slowing economic growth. At the same time, Deutsche Bank predicts that the ECB will lower its Deposit Facility rate to 1.5%, down from the 2.25% it previously expected, due to weak economic conditions and inflation risks falling below target.
In addition, political instability in Germany is adding pressure on shared currency. The recent collapse of Germany’s coalition government, after Chancellor Olaf Scholz dismissed Finance Minister Christian Lindner, has led to the possibility of snap elections in early 2025. This uncertainty delays government spending, which could further limit the Eurozone’s economic growth.
The concerns over the Eurozone’s economic outlook, ECB rate cuts, and political instability in Germany are likely to weigh on the euro, pushing the EUR/USD pair lower as investors shift towards the stronger US dollar amid rising uncertainty.
US Dollar Recovery and Fed’s Rate Cut Likely to Weigh on EUR/USD Pair
On the US front, the broad-based US dollar regained its momentum after a brief correction, with the US Dollar Index (DXY) rising back to nearly 104.65. The index had dropped to 104.20 on Thursday after reaching a high of 105.50, its highest level in over four months, following Donald Trump’s presidential election victory.
However, the US dollar’s recovery is mainly due to Trump’s promise to raise import tariffs by 10% and cut corporate taxes. Market analysts believe that these policies could boost investment, spending, and labor demand, which may lead to higher inflation and force the Federal Reserve (Fed) to take a more restrictive approach to monetary policy.
Fed Chair Jerome Powell downplayed the immediate impact of Trump's victory on US monetary policy. He said the Fed doesn't make decisions based on future government policies. Powell confirmed the Fed's decision to cut interest rates by 0.25% to 4.50%-4.75%, as expected.
He also expressed confidence that inflation would stay on track to reach the 2% target, even with some weakness in the job market, indicating that the Fed will keep its policy-easing approach for now. Therefore, the US dollar's recovery, driven by Trump’s policies and the Fed's interest rate cut, could strengthen the USD further, likely putting downward pressure on the EUR/USD pair.
EUR/USD – Technical Analysis
The EUR/USD pair is trading modestly lower at $1.07811, marking a 0.19% decline. After failing to breach the pivot level at $1.08115, the pair has found resistance, with immediate levels of concern at $1.08558 and higher at $1.08921 and $1.09363.
These levels present potential challenges for any bullish attempts, especially as the market momentum remains muted. The Relative Strength Index (RSI) sits at 48, indicating neutral sentiment, which suggests limited upward movement unless the pair breaks above these resistance points decisively.
On the downside, immediate support lies at $1.07463, with stronger support levels at $1.06982 and $1.06471, which could come into play if selling pressure intensifies. The 50 EMA, positioned at $1.08229, acts as a dynamic resistance that further validates the current bearish stance.
Given the neutral RSI and resistance from the 50 EMA, traders may find selling opportunities below $1.08112, targeting a move towards $1.07455. A stop-loss at $1.08549 could help manage risk in case of an unexpected reversal.
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