EUR/USD forecast: Currency Pair of the Week – November 25, 2024

The EUR/USD gapped higher to approach the $1.05 handle at the start of this week’s trading. Although it hadn’t quite reached that level as at the time of writing by mid-day in London it looked like price was going to break above it, at least momentarily. The stronger euro performance tracked the positive start for stocks and bond markets, as traders reacted positively to Donald Trump’s choice of Scott Bessent for Treasury Secretary. Known for his moderate stance on tariffs, Bessent is seen as a steady hand, likely to bring more stability to the US economy and financial markets. But let’s not forget that Trump will be the ultimate boss and will lead from the front. So, this slight cooling of the so-called "Trump Trade," characterised by a strong dollar (and a Bitcoin rally), may not last very long. For now, though, traders are adjusting their expectations somewhat and scaling back hopes for aggressive tax cuts and tariff hikes. It is far too early for us to drop out bearish EUR/USD forecast.

Bessent comes to euro’s resucue – for now

So, the EUR/USD looks poised to recover to at least test the $1.05 handle following last week’s break down. Scott Bessent’s nomination has alleviated concerns over Trump’s potentially inflationary policies, which had triggered a selloff in government bonds and pushed Treasury yields to a four-month high last week. What a difference a weekend makes. Now, we are seeing the opposite of that trade. While Bessent is expected to support Trump’s tax and tariff plans, investors anticipate his focus will remain on maintaining economic and market stability.

But let’s not jump into any conclusions. Trump will have the final say in anything he decides.

Indeed, the dollar has been on a strong bullish trend until today’s drop, but it is by no means the end of the bullish trend. Traders have been betting on Trump’s fiscal policies, including sweeping trade tariffs and measures to boost economic growth. The dollar index had risen for eight straight weeks through Friday. The momentum is thus quite strong and so this dollar weakness may prove to be short-lived, preventing the EUR/USD forecast from turning bullish just yet.

Weak data highlights Eurozone economic struggles 

This week starts quietly for key data, but we did have German Ifo Business Climate survey earlier to provide fresh insights into eurozone business sentiment. Given the weak PMI figures from last week, a positive surprise always seemed unlikely – and so it proved. It came in at 85.7 vs. 86.5 last, confounding expectations for a rise to 86.1.

The euro had already slipped below the 1.05 mark against the US dollar last week and hit its lowest level against the pound since early 2022, as economic concerns and trade uncertainties weighed heavily. Traders will watch eurozone data closely for signs of improvement, but if none emerge, the euro is likely to stay under pressure, despite the positive start to this week’s trading.Last week we saw the composite PMI dropped from 50 to 48.1, signalling contraction. Both services PMI and manufacturing slowed, with weak export demand and dimming business sentiment painting a grim picture. Despite third-quarter GDP growth, fourth-quarter stagnation now seems increasingly likely, fuelling bearish sentiment for the euro. 

What’s next for US dollar? 

Well, it is a shortened week due to Thanksgiving. On Wednesday, ahead of the holiday, the US will release a flurry of data, including the second estimate of Q3 GDP, core PCE inflation, unemployment claims, durable goods orders, and FOMC minutes. These reports could significantly influence the EUR/USD forecast, especially with many investors likely stepping away for the long holiday weekend. 

Technical EUR/USD forecast: key levels to watch

Source: TradingView.com

Despite rebounding today, the EUR/USD remains firmly in a bearish trend after breaking below the key 1.05 level. This level now serves as a critical resistance level in the short term. While a short-term break back above it seems likely, questions remain as to whether it can hold the potential breakout. If it can, then we may see it climb back towards the next resistance at 1.0600.

Meanwhile on the downside, with no clear support levels in sight below 1.05, attention turns to round numbers like 1.0400, 1.0300 and 1.0200. The pair has already hit April 2023’s low of 1.0448, my initial downside target, and this will be an additional level to watch should the selling resume.

-- Written by Fawad Razaqzada, Market Analyst

Follow Fawad on Twitter @Trader_F_R