The EURUSD‘s roller coaster ride could be the beginning of the end for bears. The eurozone economy is weak, but that factor is priced in the pair’s quotes. However, the Trump trade and seasonal adjustments are still underway. Let’s discuss these topics and make a trading plan.
The article covers the following subjects:
Major Takeaways
- Disappointing European PMIs sent the euro plunging.
- The new US Treasury Secretary may weaken the US dollar.
- Accelerating European inflation will change the ECB’s views.
- The EURUSD pair may start a consolidation.
Weekly US Dollar Fundamental Forecast
As 2024 draws to a close, the US is under the spotlight. The presidency of Donald Trump has served to reinforce US exceptionalism and strengthen the US dollar. The EURUSD currency pair experienced a roller coaster ride, reaching a bearish target of 1.035. However, this was followed by a swift recovery due to the appointment of Scott Bessent as US Treasury Secretary. Bessent advocates a weak US dollar and a shadow Fed Chair, which undermines the US dollar’s position.
Donald Trump’s return has prompted the reappearance of old investor fears. The EURUSD pair collapsed to its lowest level in almost two years, driven by concerns that trade duties will negatively impact the eurozone. The composite PMI declined to 48.1, below the 50-level threshold that separates economic expansion from contraction.
Euro Area PMIs
Source: Bloomberg.
Consequently, the derivatives market increased the probability of a 50 bp deposit rate cut in December from 30% to 55% and anticipates monetary policy easing at the next six ECB meetings. SEB analysts believe that the implied final borrowing costs may fall to 1.5% in the near term, which would push the EURUSD towards parity.
In its quarter-century history, the euro has only appreciated on two occasions. The last one was in 2022 when the military conflict in Ukraine and the associated energy crisis put considerable pressure on the regional currency. Almost two years later, a similar situation has arisen. Rising energy prices, the ongoing conflict in Eastern Europe, and the Trump trade are dragging the EURUSD quotes down.
However, the Trump factor has retreated following the appointment of Scott Bessette as Treasury Secretary. The hedge fund manager favors negotiations over tariffs. He views the September Fed rate cut of 50 bps as a political decision and anticipates that the shadow Fed chairman will mitigate Jerome Powell’s influence on markets.
As a result, the events of eight years ago, when the USD index rose 5% between Donald Trump’s election victory and his inauguration, followed by a weakening by May 2017, may potentially occur again. Notably, the US dollar retreated in December 2016, partly due to the traditional Christmas rally in stock indices. Historically, the last month of the year has been seasonally weak for the greenback.
Seasonal Performance of USΒ Dollar
Source: Bloomberg.
The appointment of Scott Bessent appears to be Donald Trump’s attempt to gain favor with the financial markets. During his previous presidential term, Trump considered the performance of these markets an indicator of his efficiency. As a result, the US dollar may suffer, particularly given the likelihood of the minutes of the October Fed meeting being dovish and the acceleration of European inflation in November, which reduces the chances of the ECB cutting the deposit rate by 50 bps in December.
Weekly EURUSD Trading Plan
Should EURUSD bulls manage to maintain the pair’s quotes above 1.0455, the rebound will likely persist. Once the pair hits its bearish target of 1.035, traders should be ready for a consolidation.
Price chart of EURUSD in real time mode
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