The EUR/USD exchange rate has seen a significant sell-off, hitting a low of 1.0180, marking its weakest point since November 2022. This decline stems from a growing divergence in the monetary policy paths of the Federal Reserve and the European Central Bank (ECB). While the Fed is leaning towards maintaining high interest rates for an extended period, driven by recent robust employment data, the ECB is expected to pursue further rate cuts to rejuvenate the struggling European economy.
The recent US jobs report, showing a strong gain in jobs and a lower unemployment rate, has fueled speculation of a more hawkish Federal Reserve stance. Additionally, concerns are mounting over potential inflation pressures in the US, aggravated by the Los Angeles wildfire impact on housing costs and the expected economic policies of the upcoming Trump administration. These policies, including potential tariffs and tax cuts, are expected to exert upward pressure on prices.
Conversely, the ECB is likely to proceed with rate cuts to stimulate economic growth. Analysts speculate that the central bank might even implement a large 0.50% rate cut later this month. Furthermore, the potential imposition of US tariffs on European imports is adding further downward pressure on the Euro.
EUR/USD: Trading Recommendation:
- Bearish Scenario: Sell EUR/USD with a take-profit at 1.0000 and a stop-loss at 1.0300. This is based on strong downward momentum and technical indicators signaling further declines.
- Bullish Scenario (Less Likely): Buy EUR/USD with a take-profit at 1.0300 and a stop-loss at 1.0000. This is a counter-trend position, less likely given current conditions.
Key Factors Driving the Downtrend:
- Fed Hawkishness: Potential for prolonged high interest rates.
- ECB Dovishness: Anticipated rate cuts to boost the European economy.
- US Inflation Concerns: Wildfires, Trump policies, and potential tariff impact.
- Technical Indicators: Breaching of key support levels, downward Bollinger Band movement.
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