- EUR/USD faces further downside below 1.0500 as ECB policymakers express concern over increasing risks to Eurozone economic growth.
- ECB's Villeroy advocates for additional rate cuts, citing a shift in the balance of risks toward weaker inflation and growth.
- Investors will closely monitor the flash Eurozone/US PMI data for November, set for release on Friday.
EUR/USD continues to decline as the US Dollar (USD) maintains its recovery from Wednesday and targets new yearly highs in Thursday’s North American session. The US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, is strengthening, aiming to break above the key 107.00 level. The Dollar's rally follows Donald Trump's victory in both houses, which allows him to implement his trade and tax policies smoothly, leading to inflationary pressures in the US economy. This reduces the likelihood of deep interest rate cuts from the Federal Reserve (Fed). Market speculation about Fed rate cuts in December has eased significantly, with the probability of a rate reduction dropping to 56% from 73% last week, according to the CME FedWatch tool.
Additionally, Bank of America (BofA) has raised its 2025 Federal Funds Rate target to 3.75%-4.00% from 3.00%-3.25%. Going forward, the US Dollar’s direction will depend on the preliminary S&P Global PMI data for November, expected to show improved private sector activity.
Daily Market Digest: EUR/USD Faces Pressure Amid Eurozone Growth Concerns
- EUR/USD remains under pressure above the psychological 1.0500 level in Thursday’s North American session, with selling pressure mounting on expectations that the European Central Bank (ECB) may accelerate its policy-easing cycle. The ECB is expected to cut its Deposit Facility Rate by 25 basis points (bps) to 3% in December, with further rate cuts likely as the Eurozone’s economic outlook worsens.
- Market participants are concerned about potential challenges for the European Union (EU) as US President-elect Donald Trump implements his economic agenda, which could lead to a global trade war, especially with the Eurozone and China. Trump has previously stated that the euro bloc will "pay a big price" for not buying enough American exports.
- ECB officials are increasingly concerned about risks to Eurozone economic growth and are advocating for continued rate cuts. ECB policymaker and Bank of France Governor François Villeroy de Galhau mentioned on Wednesday that the balance of risks to growth and inflation is shifting to the downside, urging for "agile pragmatism" in future rate decisions. However, he downplayed the potential impact of US tariffs on the Eurozone's inflation outlook.
- In Thursday's European session, ECB Governing Council member Yannis Stournaras supported further interest rate reductions, suggesting a target rate of approximately 2% as close to neutral. He also endorsed a 25 bps rate cut in the upcoming December meeting.
- Investors will closely monitor the flash HCOB Purchasing Managers Index (PMI) data for November for the Eurozone and its major economies, set for release on Friday. Flash readings are expected to show that overall private sector activity remains near the expansionary threshold.
Technical Analysis: EUR/USD Pressures Key Support at 1.0500
EUR/USD struggles to maintain the critical support level of 1.0500, with the overall outlook remaining bearish as all short- to long-term Exponential Moving Averages (EMAs) are trending downward.
The 14-day Relative Strength Index (RSI) is positioned in the bearish range between 20.00 and 40.00, reinforcing the potential for further weakness in the near term.
To the downside, the pair is likely to find support around the October 2023 low near 1.0450. On the upside, the 1.0600 level remains a key resistance, acting as a significant barrier for the Euro bulls.
