EUR/USD Vulnerable as Greenback Gains Further Ground Ahead of US Election
2024.10.22 10:40
The pair was a tad higher during the first half of the European session, but just like the previous day the small gains could prove to be short-lived as the continues to strengthen across the board.
With today’s macroeconomic calendar being relatively quiet again, the focus will remain on the upcoming US presidential election where Donald Trump is now leading in four out of seven swing states, according to new polls.
The tight race for the White House is keeping traders on the edge, supporting the dollar. On the macro side, one of this week’s main events was the larger-than-expected from China’s central bank on Monday, while the other is the upcoming publication of the latest PMI data on Thursday.
However, traders are now shifting their attention towards the upcoming US presidential election, which could heavily influence the EUR/USD direction in the near term.
Greenback Gains Strength, Keeping Pressure on EUR/USD
The US dollar is hovering near a 2.5-month high, as rising treasury yields and expectations for slower Federal Reserve rate cuts boost the greenback. At present, there’s a 90% chance of a 25-basis-point rate cut next month, down from 50% when a larger 50-basis-point cut was anticipated.
Political uncertainty tied to the US presidential election is also influencing the EUR/USD outlook. Recent polls show Trump gaining ground, and his protectionist trade policies—particularly towards Europe—could further strengthen the US dollar.
Should Trump’s odds of winning the election continue to rise, we could see the EUR/USD weaken further, especially if the euro continues to face pressure from economic underperformance of its own.
Subdued Eurozone Data Weighs on Euro
Looking ahead, Thursday’s data from the Eurozone and global markets will be a key focus area on the economic calendar, potentially adding more clarity to the EUR/USD outlook for the week.
Earlier this week, it was once again disappointing data dampening the EUR/USD. German Producer Price Index () for September came in at -1.4% year-over-year, well below the expected -0.8%. This suggests continued weak demand and lower consumer inflation, which may prompt the European Central Bank (ECB) to consider further rate cuts.
As euro traders brace for Thursday’s Eurozone PMI release, the outlook for the EUR/USD remains bearish. A weak performance in the sector, which has been contracting for two years, could apply further downward pressure on the euro.
EUR/USD Technical Analysis and Trade Ideas
Source: TradingView.com
From a technical standpoint, the EUR/USD outlook remains modestly bearish. I say “modestly” because despite the recent selling, the pair remains bang in the middle of the range it has been stuck inside for the best part of about 2 years. The fact that it is now down for the fourth week suggests the more recent trend has been bearish, reflecting the reduced odds of further outsized Fed rate cuts.
Anyway, the EUR/USD is struggling below key resistance at 1.0870, where the 200-day moving average has proven difficult to breach. It needs to break above this area to end its short-term bearish bias. Should this level break, further resistance lies at 1.0950 and 1.1000. On the downside, the August low of 1.0777 is the next bearish target, followed by the 1.0700 handle.
Traders will be watching both US election developments and Eurozone PMI figures closely this week, as these events are likely to dictate the next move for the EUR/USD outlook.
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