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FOREX: EURUSD Edging Lower, 2024 Lows Reside at 1.0601

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  • The single currency has continued to show relative underperformance across G10 in the aftermath of the US election, largely owing to Eurozone growth concerns and an escalating political crisis in Germany.
  • Goldman Sachs estimate that trade uncertainty and other factors will result in a 0.5% hit to real GDP in the Euro area and reinforce the case for ECB rate cuts. They have estimated that the divergent policy implications could weaken the Euro by about 3%, or even push EUR/USD below parity in the case of a global baseline tariff and commensurate tax cuts.
  • Bearish technical conditions dominate for the pair, and as noted above, price action has seen spot narrow in on 1.0666, a key support. Below here, 1.0611 represents the next downside target, the 38.2% retracement of the Sep ‘22 - Jul ‘23 bull cycle, just ahead of the year’s lows at 1.0601, printed back in April.
  • The Eurozone docket remains light this week, with German ZEW due tomorrow and the second reading of EZ GDP data expected on Thursday. Short-term focus will be on US CPI Wednesday. With Fed Funds currently pricing about 16bp of cuts for the December decision, we expect sensitivity to surprises in either direction although labour data arguably remains in the driving seat for now.
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  • The single currency has continued to show relative underperformance across G10 in the aftermath of the US election, largely owing to Eurozone growth concerns and an escalating political crisis in Germany.
  • Goldman Sachs estimate that trade uncertainty and other factors will result in a 0.5% hit to real GDP in the Euro area and reinforce the case for ECB rate cuts. They have estimated that the divergent policy implications could weaken the Euro by about 3%, or even push EUR/USD below parity in the case of a global baseline tariff and commensurate tax cuts.
  • Bearish technical conditions dominate for the pair, and as noted above, price action has seen spot narrow in on 1.0666, a key support. Below here, 1.0611 represents the next downside target, the 38.2% retracement of the Sep ‘22 - Jul ‘23 bull cycle, just ahead of the year’s lows at 1.0601, printed back in April.
  • The Eurozone docket remains light this week, with German ZEW due tomorrow and the second reading of EZ GDP data expected on Thursday. Short-term focus will be on US CPI Wednesday. With Fed Funds currently pricing about 16bp of cuts for the December decision, we expect sensitivity to surprises in either direction although labour data arguably remains in the driving seat for now.