EUR/USD Forecast: Euro rebounds but outlook uncertain ahead of US election and key data

This morning’s surprisingly robust Eurozone GDP report has sparked a bit of a rebound in the EUR/USD and other euro crosses. Yet, investors will be in no rush to buy the single currency aggressively, as they sift through a blend of US data and a less-than-stellar handover from China, where markets declined overnight. A much stronger-than-expected ADP private payroll report (233K vs. 110K) has so far failed to add further pressure on the EUR/USD, even if the data certainly increases the probability of a more measured approach from the Fed, driving both yields and the dollar higher. More to the point, market participants are eyeing the possible implications of a Trump victory on European and Chinese assets amid the potential for renewed tariffs. This is the number one factor weighing on the EUR/USD forecast, potentially capping the gains to around 1.0900. More key data will follow in the next couple of days, with Eurozone CPI and US Core PCE to come on Thursday, and the ISM Services PMI and Non-farm Payrolls data will be on the way on Friday.

US GDP disappoints but employment data surprised

Today’s release of US Q3 GDP, a pivotal metric for the EUR/USD forecast, came in slightly weaker at 2.8% compared to expectations and last quarter’s strong 3.0% annualised growth. That had set a high standard, and any deviations from the expected figure was always going to cause a bit of concern. But the Fed’ focus is more on employment than growth. On that front, today’s ADP private payrolls data was significantly stronger than expected, providing a strong leading indication that Friday’s official payrolls could show at least continued resilience.

This week’s other US data releases have largely been positive, except JOLTS job openings, which came in well below forecast. But this was offset by CB Consume Confidence coming in well above expectations, while both the official House Price Index (HPI) and S&P/Case Sheller’s indicator pointed to rising house prices. Today, Pending Home Sales came in at +7.4% m/m, significantly higher than +1.9% expected.

US Election Impact on EUR/USD Forecast

Holding the euro back is the increasing odds of a potential Trump win next week at the US presidential election, which could well influence the EUR/USD forecast in a bearish direction. Trump’s policies, including tax cuts and tariffs, are typically dollar-supportive, fostering economic growth and potential inflationary pressures. Increased inflation expectations could enhance the dollar’s appeal, setting the EUR/USD forecast on a downward trajectory as traders anticipate tighter U.S. monetary policy. Moreover, any trade tariffs that impact the Eurozone could weaken the euro further, amplifying bearish sentiments around the EUR/USD.

Eurozone Economy Surprises in Q3, But Challenges Loom

Economic data out of the Eurozone brought unexpected resilience, with the economy growing by 0.4% last quarter—double the 0.2% expectation—thanks largely to Germany narrowly sidestepping recession with 0.2% growth. Spain was a bright spot, reporting 0.8% growth, while France also outpaced expectations at 0.4%. However, Italy showed stagnation, with output flatlining.

It’s worth noting that factors like the Paris Olympics and Ireland’s contribution added temporary lift to Eurozone growth, meaning this strength may not fully extend into Q4. Recent forward-looking surveys paint a more cautious picture, signalling a potentially sluggish start to Q4. Still, the GDP surprise may relieve some pressure on the ECB, reducing the likelihood of a more aggressive 50-basis-point rate cut in December. Instead, a standard 25-basis-point reduction seems more likely. For the EUR/USD forecast, today’s growth data has provided limited support, but with the broader sentiment remaining driven by global factors, the GDP surprise is far from a game changer.

Technical Analysis: What do the charts tell us about EUR/USD forecast?

Source: TradingView.com

The two-day recovery means the pressure has eased somewhat on the EUR/USD exchange rate. But the technical EUR/USD forecast still remains moderately bearish while the pair trends below its 200-day moving average and resistance at 1.0870 to 1.0900.

If the downward pressure resumes, then the first level of support to watch is Monday’s high at 1.0826 with the next potential downside target at 1.0775-1.0780, where the 1-year-old bullish trend line comes into play. A break below that could send the pair towards 1.0700 or lower if US data continues to outpace expectations, or Trump is elected as the next US President.

-- Written by Fawad Razaqzada, Market Analyst

Follow Fawad on Twitter @Trader_F_R