EUR/USD Forecast: Currency Pair of the Week – November 18, 2024

• EUR/USD forecast remains bearish as the US dollar continues to find buyers on the dips
• Europe faces political uncertainty and weak economic sentiment, weighing on the euro
• Global PMIs and China’s rate decision among a handful of macro events this week

The EUR/USD pair has struggled to find footing, trading below the $1.06 and vulnerable to further losses. A strong US dollar is continuing to apply downward pressure, thanks to rising inflation concerns after Trump’s victory and the Federal Reserve signalling it will slow down its rate cutting. Meanwhile, the euro faces hurdles from European political instability and weakening economic indicators from Eurozone. This week, there is not much in the way of US data, but global PMIs on should cause some volatility. The EUR/USD forecast remains bearish, and we continue to expect an eventual breakdown below the $1.05 handle. 

Dollar remains bid

The US dollar continues to dominate the currency markets, buoyed by Trump’s recent election victory and a surprisingly resilient economy, as highlighted by Friday’s stronger retail sales figures, and sticky inflation data. Expectations of a loose fiscal policy outlook, including spending and tax measures in 2025 and beyond, is keeping the dollar rally alive.  The Federal Reserve’s hawkish tone last week gave the dollar another shot in the arm. Chairman Powell warned that the Fed was in no rush to cut interest rates. This resulted in a hawkish repricing of expectations for a December rate cut down to 60/40 odds from over 80% not so long ago. We also had slightly hotter than expected inflation data last week, which helped to keep the greenback on the front foot. The lack of any major data releases this week from the US will keep the Fed speakers in focus.

Eurozone woes undermine single currency

The greenback may be vulnerable to some profit-taking, but ultimately it remains in a strong bullish trend, especially against currencies where the central bank is comparatively less hawkish or more dovish than the Fed. Among these currencies is the euro, which is also undermined because of concerns over the impact of the looming tariffs when Trump takes office in January.

Meanwhile, the eurozone is grappling with political uncertainty and economic challenges. Germany, the eurozone's largest economy, last week reported disappointing sentiment data, with its ZEW economic sentiment index declining sharply. Adding to the uncertainty, German Chancellor Olaf faces a no-confidence motion on December 16, which Scholz looks certain to lose without backing from the FDP. As a result, Scholz has agreed to hold snap elections on February 23, 2025, moving up the originally scheduled election from September 2025.

Adding to the euro's challenges is its heavy dependence on external trade. China's economic struggles, driven by a property crisis and trade tariffs, are weighing heavily on European exports. Among the eurozone countries, Germany is particularly exposed due to its close trade links with China. With weak Chinese demand, the eurozone's growth outlook appears grim, reinforcing a bearish sentiment behind our EUR/USD forecast.

Key macro events to watch this week that could impact EUR/USD forecast

The macroeconomic calendar for the week offers fewer major events, but two key developments could still drive volatility: 

1. PBOC Rate Decision (Wednesday): The People’s Bank of China may surprise markets with a rate cut, adding to the pressure on the euro through its trade linkages with the Chinese economy. A weaker yuan means lower Chinese demand for eurozone goods and services.
2. Global Flash PMIs (Friday): Friday’s PMI data for manufacturing and services sectors will provide fresh insights into economic health across major regions, including the eurozone. Given the eurozone's recent struggles, a weak PMI print could fuel further selling pressure on EUR/USD, while stronger data could result in a short-squeeze rally.

Concerns over slowing demand, compounded by trade tensions and potential tariffs, weigh heavily on sentiment. Unless the eurozone shows an unexpected improvement in its data, the bearish dynamics for EUR/USD are unlikely to shift meaningfully. 

Technical EUR/USD forecast: key levels to watch

From a technical perspective, the EUR/USD continues its bearish trajectory, with lower highs and lower lows. The FX pair last week tested and briefly broke below the 1.0500 level before rebounding slightly.

Source: TradingView.com

So, immediate support lies at 1.0500 on the EUR/USD chart, which could be tested again if the dollar buying pressure continues. A break below this level could give rise to further technical selling, even without any fresh macro catalysts. The October 2023 low at 1.0448 is the next bearish target.

In terms of resistance levels to watch, well a short-term area to watch is now the old support zone of around 1.0590-1.0600. Above that area, 1.0650, 1.0700, and 1.0770 will come into focus.

In summary, our bearish EUR/USD forecast reflects a challenging environment for the euro and a strong dollar, owing to European economic uncertainty and Trump’s pro-growth policies. Unless significant bullish catalysts emerge, the path to sub $1.05 seems increasingly likely.

-- Written by Fawad Razaqzada, Market Analyst

Follow Fawad on Twitter @Trader_F_R