The EUR/USD made significant gains this year, reaching 1.12. However, by mid-October, the currency pair reversed course as rising Eurozone weakness, geopolitical tensions, the ECB’s rate cut cycle, and a stronger USD dampened its bullish momentum.
EU/USD is still showing strong signs of bearish sentiment, where the U.S. Dollar was heavily supported by the Federal Reserve shifting its mood to a hawkish stance after announcing that rate cuts may be paused in 2025.
The ECB maintains dovish guidance on interest rate policy for the next year, which might continue to put downward pressure on the Euro. The ECB reduced its Deposit Facility rate by 100 bps to 3% this year and is expected to lower it to 2%, which policymakers see as a neutral rate, by the end of June 2025. This suggests that the ECB will cut its key borrowing rates by 25 bps at every meeting in the first half of next year.
The Eurozone data showed signs of weakness especially in growth, manufacturing and services, with also political instability in France and Germany which added weakness to the region.
The Fed shocked markets earlier this month by cutting their interest-rate forecast for 2025 to 50bps cuts, from 100bps, wary of stubbornly high inflation. This move supported the U.S. Dollar as it removed major gains for this year against major currencies.
The U.S. Dollar has also been boosted by expectations of President-elect Donald Trump’s policies of looser regulation, tax cuts, tariff hikes and tighter immigration. These factors will be both pro-growth and inflationary which might keep U.S. Treasury yields elevated.
The U.S. economy has continued to outperform most of the G10 countries despite high interest rates.
Technical Analysis
Source: TradingView
EUR/USD rebounded from the November 22 low at 1.035 but still looks to be under bearish pressure from all 3 EMAs. Price formed a bearish flag which might indicate that the price may continue to trend downwards.
If bears continue to push the price down, traders might monitor the 1.038 level as a new potential support. If price can rise above 1.0425, bulls may look to rebound and might aim to push the price higher, where resistance around 1.045 might be formed.
