EUR/USD Price Analysis – Nov 22, 2024
Daily Price Outlook
During European trading session on Friday, the EUR/USD managed to recover some of its losses after hitting a fresh two-year low around 1.0330. However, the outlook for the pair remains bearish.
This is due to the disappointing preliminary HCOB Eurozone Purchasing Managers Index (PMI) for November, which showed a surprising contraction in business activity. Meanwhile, the US Dollar continues its bullish run, pushing the US Dollar Index to nearly 108.00, intensifying the selling pressure on EUR/USD.
Weak Eurozone Data and Growing Economic Concerns Heighten Expectations for ECB Rate Cut, Weighing on EUR/USD
On the data front, the Eurozone's Composite PMI fell to 48.1, much lower than the expected 50.0, which signals a contraction in economic activity. A PMI below 50.0 indicates that the economy is shrinking.
The decline was mainly driven by a weaker-than-expected Services PMI, which dropped to 49.2, far below the forecast of 51.8. This marks the first time since January that the service sector has contracted. The Manufacturing PMI also continued to decline, falling to 45.2, worse than both expectations and the previous reading of 46.0.
Meanwhile, the slowdown in business activity has raised concerns among European Central Bank (ECB) officials. They are already worried about weak growth and potential risks, especially with the possibility of a trade war with the United States.
ECB Chief Economist Philip Lane warned that a global trade war, triggered by President-elect Donald Trump’s potential tariffs, could cause significant damage to the global economy. He stressed that trade disruptions would result in major output losses.
As a result of the weak data, traders now believe there is a greater than 50% chance that the ECB will cut its Deposit Facility Rate by 50 basis points (bps) to 2.5%. Before the PMI data was released, the chances of such a large rate cut were less than 20%. This shows growing expectations for the ECB to take action to support the economy.
Therefore, the weak Eurozone data and growing concerns about economic risks increase the likelihood of an ECB rate cut, which could weaken the euro further. As a result, EUR/USD may face additional downward pressure, with the US dollar strengthening in comparison.
US Dollar Strengthens on Optimistic Economic Outlook and Eased Fed Rate Cut Expectations
On the US front, the broad-based US dollar is gaining strength, with EUR/USD facing heavy selling pressure. The US Dollar Index is nearing a two-year high, fueled by expectations that the Federal Reserve (Fed) will cut interest rates less than previously thought.
Investors now expect the US economy to grow faster, particularly with President-elect Donald Trump's economic plans, which include cutting taxes and raising import tariffs, especially on countries like the Eurozone and China.
Trump’s plans to raise tariffs and cut taxes are expected to boost business investment, demand for labor, and domestic goods. This could lead to higher inflation, which would make the Fed more cautious about cutting interest rates too quickly.
As a result, market expectations for rate cuts have eased. The chance of a 25-basis point reduction in December has dropped to 56% from 70% just a month ago.
Looking ahead, investors are waiting for the US S&P Global PMI data for November, which will be released at 14:45 GMT. The report is expected to show stronger business activity, with growth in both the manufacturing and service sectors, which could further support the dollar’s bullish momentum.
EUR/USD – Technical Analysis
EUR/USD is trading at $1.04841, marking a modest gain of 0.10%, as the pair consolidates near critical support levels. Immediate resistance lies at $1.05129, with higher targets at $1.05767 and $1.06083. On the downside, immediate support is set at $1.04516, followed by $1.04300 and $1.03999, signaling the potential for bearish pressure if the pair breaches key levels.
The pivot point at $1.05548 serves as a key marker for directional bias. Currently, the pair trades below the 50-day EMA at $1.05494, indicating a bearish trend in the short term. The RSI at 38 suggests weak momentum, leaning toward oversold conditions but not yet signaling a reversal.
Traders are advised to consider selling below $1.05122, targeting $1.04501 with a stop-loss at $1.05629. A break below $1.04516 could lead to further declines toward $1.04300, while a recovery above $1.05129 would challenge bearish dominance and open the path to $1.05767.
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