The EUR/USD pair has been under pressure since the U.S. elections, igniting a huge demand for the U.S. Dollar with tariffs being proposed and the upcoming administration’s new fiscal policies. The U.S. economy continued to show strength which has also made the USD more attractive.
The Eurozone, on the other hand, has been facing weak economic data from its powerhouses France and Germany where government instability has also emerged. This has led to a decline in European stocks and the Euro.
Mixed Eurozone Data
The Eurozone economy had mixed economic data this year which pressured the Euro and European stocks. GDP in the EU is still showing signs of growth even though Germany has experienced issues with GDP fluctuating between growth and contraction. The labor market in the region is also showing strong signs.
Despite strong growth in the labor market, the region is still encountering issues from its services and manufacturing sectors. Economic momentum deteriorated in November, as reflected in the latest PMI data.
The Composite PMI fell to 48.1, indicating the sharpest contraction since January, with both manufacturing and services sectors declining. For the first time in 10 months, the services sector joined manufacturing in contraction territory, signaling deeper challenges for the Eurozone’s private sector.
Inflation climbed to 2.3%, which is above the ECB’s target. The November inflation data is unlikely to alter the ECB’s current policy trajectory. The ECB is still committed to its rate cut cycle even though inflation went above target. Its focus now will be reviving economic activity in the region.
However, the ongoing political unrest, particularly in France and Germany, could pose a serious threat to European economies.
France’s Political Crisis
France is experiencing significant political turmoil that is impacting the euro’s stability. Prime Minister Michel Barnier’s government faces a no-confidence vote after he bypassed parliamentary approval to pass the 2025 budget, a move that has united opposition parties against him.
Traders are closely monitoring the situation, as prolonged instability could have broader implications for the Eurozone’s financial health. The European Union is also keeping a close watch, given France’s significant role in the bloc’s economic dynamics.
USD Outperforms
The USD is still outperforming most of the major currencies, especially against the Euro. The Federal Reserve stated the central bank won’t be aggressive on cutting rates as the U.S. economy remains resilient.
The Federal Reserve is set to meet on December 17-18 for the next decision on interest rates. Financial markets are expecting a 25-bps rate cut with some Fed officials questioning whether sufficient progress has been made in controlling inflation to justify further easing.
The U.S. Dollar’s trajectory is being influenced by President-elect Donald Trump’s proposed tariffs and fiscal policies. In the short term, these measures are expected to strengthen the dollar by boosting domestic spending. However, they may lead to medium-term weakening due to potential economic strains and increased inflation.
Traders and investors will monitor Friday’s labor report where non-farm payrolls are expected to increase by 200k, unemployment is expected to stay steady at 4.1%, and average hourly earnings is forecasted at a 0.3% increase.
The labor data is one of the most important data for the Fed in order to analyze and determine their next moves.
Technical Analysis
EURUSD is still in a strong downtrend with the EMAs moving above the price, adding bearish pressure to the pair.
The MACD shows a reading below 0 and indicates that the downtrend could continue.
If this scenario plays out, the pair might see a path down towards 1.03 where support could come into effect.
If the pair finds strength to reverse, it may need to recapture ground above 1.055, aiming to reach the pivot point around 1.062 where it could face resistance.
