- EUR/USD forecast remains bearish as dollar strength dominates
- Economic and political uncertainty in Europe and Trump’s inflationary policies weigh
- Technical analysis shows potential for EUR/USD to hit $1.05 soon
The EUR/USD’s post US CPI pop faded as quickly as it rose, before the pair resumed lower to hit fresh yearly lows. The exchange rate is facing heavy downward pressure, now that it has broken $1.06 handle, potentially paving the way for $1.05 or even low. Market sentiment has leaned towards a stronger dollar as US election outcome has fuelled expectations of fewer Federal Reserve rate cuts. Meanwhile, Europe is wrestling with economic and political headwinds, which only add to the euro’s challenges. This EUR/USD forecast outlines the factors currently at play and explores whether we could see a drop below the $1.05 level.
Dollar gains momentum despite in-line CPI
The US dollar has been on a rally even before the US election, following recent economic data that underscored the economy’s resilience. Inflation concerns are coming back as Trump’s proposed tax cuts and spending could see the Fed maintain a tighter policy than would have otherwise been the case, in 2025. Today’s CPI hardly changed that view. It came in bang in line with the expectations at 2.6% year-over-year, accelerating from 2.4% the previous month. Investors are therefore watching for further dips in the EUR/USD, with a bias towards short positions given the current macro trends.
EUR/USD dragged lower by European challenges
The euro has been struggling to gain any bullish momentum since the end of the summer, partly due to ongoing political and economic uncertainty. This week’s release of a key German economic sentiment data disappointed, showing lower-than-expected figures that highlight potential slowdown in Europe’s largest economy. Moreover, Chancellor Olaf Scholz’s upcoming confidence vote adds to the political volatility, casting further doubt on the euro’s strength. This political risk, combined with sluggish economic data, suggests that the euro could remain under pressure.
What’s more, economic strain in China—one of Europe’s key trade partners—continues to impact the eurozone, particularly Germany. Weak demand from China due to its own property crisis and Trump’s potential trade tariffs is limiting growth prospects in the eurozone, adding another bearish factor for EUR/USD forecast.
Technical EUR/USD forecast: Lower lows point to sub $1.05
On the technical side, the EUR/USD has been setting lower lows and lower highs, pointing to a continued downtrend. After recently breaking the 1.0600 handle, further losses appear to be on the horizon.
Source: TradingView.com
Key Support Levels: The next significant support lies at 1.0500. While a bounce there should not come as surprise, breaking this level could lead to further losses, as selling pressure builds around these lower thresholds. The October 2023 low comes in at 1.0448.
Key Resistance Levels: Should we see a short-term recovery, resistance levels to watch include the now broken 1.0600 handle, followed by 1.0650, 1.0700, and 1.0770.
Given the technical and macro outlook, the technical EUR/USD forecast suggests favouring bearish setups unless a strong reversal pattern appears.
Summary
This EUR/USD forecast highlights how a mix of inflation risks and trade tariffs in the US, and European political uncertainty, are keeping the euro under pressure. With the euro’s path of least resistance remaining downward, the potential for EUR/USD to dip toward $1.05 is well within reach. As always, traders should watch for signs of a trend reversal but, for now, the bias remains bearish.
-- Written by Fawad Razaqzada, Market Analyst
Follow Fawad on Twitter @Trader_F_R
