EUR/USD Price Forecast: Bullish attempts should be temporary

• EUR/USD rose markedly beyond the key 1.0500 hurdle on Monday.
• The US Dollar sharply reversed part of its recent gains.
• Investors will closely follow US data and the FOMC Minutes.

The week began on a promising note for EUR/USD, which climbed to two-day highs above the 1.0500 mark, driven by a sharp decline in the US Dollar (USD). This reaction stemmed from investor optimism following President-elect Donald Trump’s nomination of Scott Bessent as the next US Treasury Secretary.

The greenback weakened further, and US yields broadly retreated on Monday after Bessent’s nomination. His recent characterisation of sweeping trade tariffs as "maximalist" positions reassured investors, suggesting that Trump’s trade policies might take a more measured approach than initially anticipated.

On the monetary policy front, the Federal Reserve (Fed) lowered its benchmark interest rate by 25 basis points to a range of 4.75%-5.00% during its November 7 meeting. This widely expected move aligns with the Fed’s efforts to guide inflation back to its 2% target. However, cracks are starting to appear in the labour market, despite unemployment remaining historically low.

In recent remarks, Fed Chair Jerome Powell struck a cautious tone, signalling that the central bank is in no rush to implement further rate cuts. This stance tempered market expectations for a December rate cut and provided some support to the USD. Similarly, FOMC Governor Michelle Bowman echoed Powell’s views, advocating for caution in further easing of monetary policy.

Meanwhile, the European Central Bank (ECB) has adopted a wait-and-see approach. After lowering its deposit rate to 3.25% in October, the ECB has paused further rate adjustments to gather more data. Despite this, inflationary pressures remain, with wage growth in the eurozone accelerating to 5.42% in the third quarter.

Looking ahead, the potential reinstatement of tariffs on European or Chinese goods under a renewed Trump presidency could heighten inflationary risks in the U.S. If the Fed maintains its cautious stance or pivots hawkishly in response, the USD could strengthen further, keeping EUR/USD under pressure.

On another front, speculative traders have increased their bearish bets on the Euro (EUR), with net shorts climbing to a three-week high of approximately 42.6K contracts. Conversely, commercial net longs rose above 21K contracts, while open interest showed a notable increase after two weeks of declines.

In the near term, the release of preliminary inflation data for Germany and the broader eurozone will be key events to watch.

Technical Outlook for EUR/USD

Further losses may push the EUR/USD down to its 2024 low of 1.0331 (November 22), seconded by weekly lows of 1.0290 (November 30, 2022) and 1.0222 (November 21, 2022).

On the upside, the 200-day SMA at 1.0856 presents immediate resistance, followed by the intermediate 55-day SMA at 1.0878 and the November high of 1.0936 (November 6).

Furthermore, the short-term technical picture is bearish as long as the EUR/USD continues below the 200-day SMA.

The four-hour chart shows a mild recovery could be in the offing. However, the initial resistance occurs at 1.0530 prior to 1.0609 and 1.0653. The next negative target is 1.0331, then 1.0290. The Relative Strength Index (RSI) bounced to around 50.