EUR/USD Weekly Forecast: Inflation under scrutiny as Trump returns to the White House

• Former President Donald Trump won the United States (US) 2024 presidential election.
• Germany and the United States will publish fresh inflation figures next week.
• EUR/USD gained bearish traction and technically aims for lower lows.

The EUR/USD pair plummeted to 1.0681 on Wednesday as the US Dollar (USD) soared following the outcome of the United States (US) presidential election. Former President Donald Trump has been elected as the 47th US President and will return to the White House in January 2025. Not only did he pull out an outstanding victory, Republicans also gained control of the Senate and are seven seats away from taking the House.

However, excitement receded by the end of the week and EUR/USD hovers around 1.0760.

What the US election outcome mean for the economy

Donald Trump built his victory around promises of tax cuts, deregulation and huge changes to foreign trade policies, including massive tariffs. Congress's full control indeed would help him implement his ideas, yet to which extent is yet to be seen.

The first thing the market thought, however, is that inflation is likely to rise again if Trump imposes his agenda, resulting in a potential shift in the Federal Reserve's (Fed) current monetary loosening policy.  Fewer interest rate cuts and even a hike have come to the market’s mind. As a result, stocks rallied alongside government bond yields while the US Dollar strengthened.

As usual, speculative interest is moving ahead of facts.

Federal Reserve’s independence

Meanwhile, the Fed had a monetary policy meeting right after the election and, as widely anticipated, Chairman Jerome Powell announced a 25 basis points (bps) cut to the benchmark interest rate, setting a target range of 4.50%-4.75%.

Policymakers voted unanimously and noted that “the risks to achieving its employment and inflation goals are roughly in balance”, while adding the economy “has continued to expand at a solid pace.”

As expected, Powell’s press conference revolved around Trump’s victory and its implications for the future of monetary policy. Powell worked hard to reaffirm the central bank’s independence and said he wouldn’t resign even if asked to, clarifying the President has no power to dismiss him.

European economic turmoil continues

European Central Bank (ECB) Vice President Luis de Guindos said on Wednesday that growth in the Eurozone may be weaker than previously thought, adding global trade barriers would have dire consequences for the economy. De Guindos also acknowledged that the local economy has barely grown in the past year and noted that Trump’s return to office will likely be “bad news” in such aspect.

Macroeconomic releases from the last few days confirm the gloomy outlook. The Hamburg Commercial Bank (HCOB) upwardly revised the EU Composite Purchasing Managers Index (PMI), confirming it at 50.0 in October, which indicates no change in private sector output levels when compared with the month prior, according to the official report. Even further, the document states that “EU businesses began the final quarter of 2024 in stagnation, as shrinking levels of business activity in the currency bloc’s two largest economies – Germany and France – offset expansion elsewhere.”

Inflation takes centre stage next week

Investors will carefully watch upcoming macroeconomic releases as Germany and the US will release fresh inflation figures. Germany will publish the final estimate of the October Harmonized Index of Consumer Prices (HICP), while the US will unveil the October Consumer Price Index (CPI). Other than that, the EU will release the second estimate of the Q3 Gross Domestic Product (GDP) and the US will publish the October Producer Price Index (PPI) and Retail Sales for the same month.

EUR/USD technical outlook  

The EUR/USD trades roughly 200 pips below its November peak at 1.0936 and technical readings in the weekly chart suggest sellers are in full control. The pair met sellers at around a flat 20 Simple Moving Average (SMA) while falling below an also directionless 100 SMA. The 200 SMA, in the meantime, gains bearish traction above the shorter ones, in line with increased bearish pressure. Finally, technical indicators head firmly south within negative levels and at their lowest since June, anticipating lower lows ahead.

Technical readings in the daily chart also align with a downward extension. EUR/USD develops below all its moving averages, with the 20 SMA accelerating south below the longer ones and providing dynamic resistance at around 1.0830. Technical indicators, in the meantime, consolidate below their midlines with modest bearish slopes.

The weekly low at 1.0681 is the immediate support level ahead of the year low at 1.0600. A break below the latter seems unlikely, but if it happens, the slide may continue towards the 1.0530/40 price zone.

Sellers are likely aligned in the 1.0800-1.0830 region, the immediate resistance area, followed by the 1.0900 mark.