Euro outlook: EUR/USD and EUR/JPY in focus – Forex Friday

Today’s release of PMI data confirmed what we already suspected: the Eurozone economy is struggling, implying that a faster pace of rate cuts is warranted from the ECB, which, in turn, should mean a weaker euro. Indeed, a day after taking out the 1.0500 psychological level, the EUR/USD plunged further into the negative for the year, dropping below 1.0335, before bouncing back somewhat. Against a backdrop of weakening economic data, looming tariffs from the US in 2025 and a struggling Chinese economy (bad for Eurozone exports), the euro outlook remains negative, putting pairs such as the EUR/USD and EUR/JPY into focus – the latter having just formed a bearish technical signal. Later in the day, we will get the US PMIs, as well as Canadian retail sales figures.

Weak PMIs raise alarm bells over Eurozone economy

Eurozone business activity took an unexpected hit in November, with the composite PMI dropping from 50 to 48.1, signalling contraction. While recent hard data like GDP have shown resilience, this PMI dip raises questions ahead of December’s ECB meeting. Will the central bank heed this signal or lean on stronger hard data?

Back in October, ECB President Christine Lagarde highlighted PMIs as a key concern. Now, with services PMI also signalling contraction and new business slowing across manufacturing and services, the warning signs are piling up. Weak export demand is dragging the eurozone economy, and business sentiment for the year ahead has dimmed further.

Despite third-quarter GDP growth, the outlook is shaky. Fourth-quarter stagnation—with zero growth—looks increasingly plausible, making for a bearish euro outlook.

Looking ahead to next week: German ifo and US data dump

The week ahead is set to be a quiet one in terms of key data, until Thursday when we will get a US data dump

But Monday, the euro outlook will be put to another test with the release of German Ifo Business Climate survey. Following the weak PMI figures, we don’t expect businesses to report any surprise feedback about the Eurozone economy.

The EUR/USD has decisively broken the $1.05 handle and the EUR/GBP has recently dropped to its lowest levels since early 2022, with the single currency weakening amid Trump’s victory and threats of tariffs on eurozone exports. Meanwhile concerns about China and the health of Eurozone’s economy have also remained at the forefront, so incoming data will be watched closely to see if any signs of improvements can be observed for Eurozone economy. If not, the euro should remain under pressure.

Meanwhile, ahead of Thanksgiving on Thursday, we will see three days’ worth of US data released on Wednesday, with most investors likely off on Friday too. We will get the second estimate of GDP for Q3, after the advanced version missed expectations with a print of 2.8%. In addition, the Fed’s favourite inflation measure – core PCE – is also released. Other data highlights include Unemployment Claims, Durable Goods Orders, Pending Home Sales and FOMC Meeting Minutes. These US data releases should also impact the EUR/USD outlook.

Technical euro outlook: EUR/USD and EUR/JPY

The EUR/USD remains rooted in a bearish trend, and having just broken the key 1.05 level, this is now going to be the most important resistance level to watch in the short-term outlook for the pair. There are no obvious support levels in sight now, so it is worth keeping an eye on round handles like 1.0300, 1.0200 etc. For what it is worth, my main downside target was liquidity below April 2023 low of 1.0448, and we have now got there. 

The daily RSI is now at oversold levels, so while further downside should be expected, I wouldn’t rule out the possibility of at least a short-term recovery in the not-too-distant future. But for as long as the EUR/USD does not break back above the most recent high of around 1.0600, the path of least resistance should remain to the downside.

The EUR/JPY has broken below key support at 162.00. A close below this level should be bearish for then we will have created a new lower low. This level is now the most important resistance to watch. Key support below here is at 160.00, which has already been tested and we bounced from it. Below this level, the October low at 158.10 comes into focus next.

So, with a bearish macro backdrop, the euro outlook remains negative, and we will favour looking for bearish setups on pairs such as the EUR/USD and EUR/JPY until the charts tell us otherwise.

Source for all charts used in this article: TradingView.com

-- Written by Fawad Razaqzada, Market Analyst

Follow Fawad on Twitter @Trader_F_R