EUR/USD Weekly Forecast: No light at the end of the tunnel
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CLAIM OFFER- EUR/USD retreats to two-year lows near 1.0330.
- The US Dollar appears unstoppable and reaches new top.
- Next data of note in the euro area will be flash inflation data.
It was an awful week for EUR/USD. In fact, the fourth quarter has been dreadful so far for the European currency. Since late September’s yearly highs, above 1.1200, the pair has closed with gains in just one week. The Fiber has retreated nearly 8% since then or more than eight cents.
The Euro has had a rough ride lately, with much of its weakness amplified by a resurgent US Dollar (USD). The Greenback has gained fresh momentum, fueled by the sudden resurgence of geopolitical tensions — particularly in the Russia-Ukraine conflict — as well as the revival of the so-called "Trump trade." Against this backdrop, the US Dollar Index (DXY) surged to a new cycle high, climbing above the 108.00 mark for the first time since early November 2022.
Why parity is back on the table
Considering the same scenario, if EUR/USD lost eight big figures in nearly two months, a “meagre” three-cent drop could seem even more likely.
Aside from the current oversold condition of the single currency, there’s little to suggest a near-term rebound — let alone a sustainable recovery.
The prospects for a stronger US Dollar dominate sentiment and are only occasionally tempered by technical corrections as investors are expected to back the “Trump trade” throughout most of 2025.
On the domestic front, preliminary indicators of business activity in both Germany and the broader Euroland are far from encouraging. Adding to this, the bleak outlook for the German economy — exacerbated by visible political instability and stagnant economic activity across the bloc — doesn’t bode well for the Euro.
And that’s without even considering the performance of the US economy.
Looking ahead, the specter of renewed tariffs on European or Chinese goods under a possible Trump administration could stir up inflation in the US. If the Fed continues its cautious approach — or even tilts hawkish in response — the USD could strengthen further, keeping EUR/USD under pressure.
A looser ECB, a cautious Fed
On the monetary policy front, the Federal Reserve (Fed) cut its benchmark interest rate by 25 basis points at its November 7 meeting, bringing the Fed Funds Target Range (FFTR) to 4.75%-5.00%. This widely expected move is part of the Fed’s ongoing effort to steer inflation closer to its 2% target. However, cracks are beginning to appear in the labour market, even as unemployment rates remain near historic lows.
Fed Chair Jerome Powell struck a cautious tone in his latest remarks, signalling that the central bank is in no rush to lower rates further. This has dampened speculation about a December rate cut while simultaneously providing additional support for the Dollar.
Other Fed officials, notably Governor Michelle Bowman, echoed Powell’s sentiment, emphasising the need for restraint when considering future rate reductions.
Meanwhile, across the Atlantic, a dovish narrative continues to dominate among European Central Bank (ECB) policymakers, despite October’s uptick in the Harmonised Index of Consumer Prices (HICP) and higher Negotiated Wage Growth in the third quarter.
So far, markets are pricing in approximately 75 basis points of easing by the Fed over a 12-month horizon, compared to around 150 basis points of rate reductions expected from the ECB within the same period.
Techs on EUR/USD
Further losses could push EUR/USD down to its 2024 low of 1.0331 (November 22). The breakdown of this level could open the door to a probable visit to the weekly lows of 1.0290 (November 30 2022) and 1.0222 (November 21).
On the upside, there is minor resistance at the weekly top of 1.0606 (November 18), seconded by the critical 200-day Simple Moving Average (SMA) at 1.0857.
It is worth noting that the short-term technical outlook remains bearish as long as the pair stays below the latter.
Furthermore, the daily Relative Strength Index (RSI) entered the oversold region near 16, while the Average Directional Index (ADX) at nearly 49 indicates a strong trend.
Economic Indicator
Core Harmonized Index of Consumer Prices (YoY)
The Core Harmonized Index of Consumer Prices (HICP) measures changes in the prices of a representative basket of goods and services in the European Monetary Union. The HICP, – released by Eurostat on a monthly basis, is harmonized because the same methodology is used across all member states and their contribution is weighted. The YoY reading compares prices in the reference month to a year earlier. Core HICP excludes volatile components like food, energy, alcohol, and tobacco. The Core HICP is a key indicator to measure inflation and changes in purchasing trends. Generally, a high reading is seen as bullish for the Euro (EUR), while a low reading is seen as bearish.
Read more.Next release: Fri Nov 29, 2024 10:00 (Prel)
Frequency: Monthly
Consensus: -
Previous: 2.7%
Source: Eurostat
ECB FAQs
The European Central Bank (ECB) in Frankfurt, Germany, is the reserve bank for the Eurozone. The ECB sets interest rates and manages monetary policy for the region. The ECB primary mandate is to maintain price stability, which means keeping inflation at around 2%. Its primary tool for achieving this is by raising or lowering interest rates. Relatively high interest rates will usually result in a stronger Euro and vice versa. The ECB Governing Council makes monetary policy decisions at meetings held eight times a year. Decisions are made by heads of the Eurozone national banks and six permanent members, including the President of the ECB, Christine Lagarde.
In extreme situations, the European Central Bank can enact a policy tool called Quantitative Easing. QE is the process by which the ECB prints Euros and uses them to buy assets – usually government or corporate bonds – from banks and other financial institutions. QE usually results in a weaker Euro. QE is a last resort when simply lowering interest rates is unlikely to achieve the objective of price stability. The ECB used it during the Great Financial Crisis in 2009-11, in 2015 when inflation remained stubbornly low, as well as during the covid pandemic.
Quantitative tightening (QT) is the reverse of QE. It is undertaken after QE when an economic recovery is underway and inflation starts rising. Whilst in QE the European Central Bank (ECB) purchases government and corporate bonds from financial institutions to provide them with liquidity, in QT the ECB stops buying more bonds, and stops reinvesting the principal maturing on the bonds it already holds. It is usually positive (or bullish) for the Euro.
- EUR/USD retreats to two-year lows near 1.0330.
- The US Dollar appears unstoppable and reaches new top.
- Next data of note in the euro area will be flash inflation data.
It was an awful week for EUR/USD. In fact, the fourth quarter has been dreadful so far for the European currency. Since late September’s yearly highs, above 1.1200, the pair has closed with gains in just one week. The Fiber has retreated nearly 8% since then or more than eight cents.
The Euro has had a rough ride lately, with much of its weakness amplified by a resurgent US Dollar (USD). The Greenback has gained fresh momentum, fueled by the sudden resurgence of geopolitical tensions — particularly in the Russia-Ukraine conflict — as well as the revival of the so-called "Trump trade." Against this backdrop, the US Dollar Index (DXY) surged to a new cycle high, climbing above the 108.00 mark for the first time since early November 2022.
Why parity is back on the table
Considering the same scenario, if EUR/USD lost eight big figures in nearly two months, a “meagre” three-cent drop could seem even more likely.
Aside from the current oversold condition of the single currency, there’s little to suggest a near-term rebound — let alone a sustainable recovery.
The prospects for a stronger US Dollar dominate sentiment and are only occasionally tempered by technical corrections as investors are expected to back the “Trump trade” throughout most of 2025.
On the domestic front, preliminary indicators of business activity in both Germany and the broader Euroland are far from encouraging. Adding to this, the bleak outlook for the German economy — exacerbated by visible political instability and stagnant economic activity across the bloc — doesn’t bode well for the Euro.
And that’s without even considering the performance of the US economy.
Looking ahead, the specter of renewed tariffs on European or Chinese goods under a possible Trump administration could stir up inflation in the US. If the Fed continues its cautious approach — or even tilts hawkish in response — the USD could strengthen further, keeping EUR/USD under pressure.
A looser ECB, a cautious Fed
On the monetary policy front, the Federal Reserve (Fed) cut its benchmark interest rate by 25 basis points at its November 7 meeting, bringing the Fed Funds Target Range (FFTR) to 4.75%-5.00%. This widely expected move is part of the Fed’s ongoing effort to steer inflation closer to its 2% target. However, cracks are beginning to appear in the labour market, even as unemployment rates remain near historic lows.
Fed Chair Jerome Powell struck a cautious tone in his latest remarks, signalling that the central bank is in no rush to lower rates further. This has dampened speculation about a December rate cut while simultaneously providing additional support for the Dollar.
Other Fed officials, notably Governor Michelle Bowman, echoed Powell’s sentiment, emphasising the need for restraint when considering future rate reductions.
Meanwhile, across the Atlantic, a dovish narrative continues to dominate among European Central Bank (ECB) policymakers, despite October’s uptick in the Harmonised Index of Consumer Prices (HICP) and higher Negotiated Wage Growth in the third quarter.
So far, markets are pricing in approximately 75 basis points of easing by the Fed over a 12-month horizon, compared to around 150 basis points of rate reductions expected from the ECB within the same period.
Techs on EUR/USD
Further losses could push EUR/USD down to its 2024 low of 1.0331 (November 22). The breakdown of this level could open the door to a probable visit to the weekly lows of 1.0290 (November 30 2022) and 1.0222 (November 21).
On the upside, there is minor resistance at the weekly top of 1.0606 (November 18), seconded by the critical 200-day Simple Moving Average (SMA) at 1.0857.
It is worth noting that the short-term technical outlook remains bearish as long as the pair stays below the latter.
Furthermore, the daily Relative Strength Index (RSI) entered the oversold region near 16, while the Average Directional Index (ADX) at nearly 49 indicates a strong trend.
Economic Indicator
Core Harmonized Index of Consumer Prices (YoY)
The Core Harmonized Index of Consumer Prices (HICP) measures changes in the prices of a representative basket of goods and services in the European Monetary Union. The HICP, – released by Eurostat on a monthly basis, is harmonized because the same methodology is used across all member states and their contribution is weighted. The YoY reading compares prices in the reference month to a year earlier. Core HICP excludes volatile components like food, energy, alcohol, and tobacco. The Core HICP is a key indicator to measure inflation and changes in purchasing trends. Generally, a high reading is seen as bullish for the Euro (EUR), while a low reading is seen as bearish.
Read more.Next release: Fri Nov 29, 2024 10:00 (Prel)
Frequency: Monthly
Consensus: -
Previous: 2.7%
Source: Eurostat
ECB FAQs
The European Central Bank (ECB) in Frankfurt, Germany, is the reserve bank for the Eurozone. The ECB sets interest rates and manages monetary policy for the region. The ECB primary mandate is to maintain price stability, which means keeping inflation at around 2%. Its primary tool for achieving this is by raising or lowering interest rates. Relatively high interest rates will usually result in a stronger Euro and vice versa. The ECB Governing Council makes monetary policy decisions at meetings held eight times a year. Decisions are made by heads of the Eurozone national banks and six permanent members, including the President of the ECB, Christine Lagarde.
In extreme situations, the European Central Bank can enact a policy tool called Quantitative Easing. QE is the process by which the ECB prints Euros and uses them to buy assets – usually government or corporate bonds – from banks and other financial institutions. QE usually results in a weaker Euro. QE is a last resort when simply lowering interest rates is unlikely to achieve the objective of price stability. The ECB used it during the Great Financial Crisis in 2009-11, in 2015 when inflation remained stubbornly low, as well as during the covid pandemic.
Quantitative tightening (QT) is the reverse of QE. It is undertaken after QE when an economic recovery is underway and inflation starts rising. Whilst in QE the European Central Bank (ECB) purchases government and corporate bonds from financial institutions to provide them with liquidity, in QT the ECB stops buying more bonds, and stops reinvesting the principal maturing on the bonds it already holds. It is usually positive (or bullish) for the Euro.
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