📊 EURUSD faces headwinds from ECB rate cuts and potential Trump presidency
During a relatively quiet trading session on Monday, the euro (EUR) gained 0.18% against the U.S. dollar (USD).
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Possible effects for traders
The U.S. Dollar Index (DXY) is heading for its largest monthly rise in two and a half years against a basket of major currencies. This surge is fuelled by a combination of factors: a strong U.S. economy and expectations that Donald Trump will win a presidential election, which could result in major trade policy changes. Indeed, better-than-expected U.S. macroeconomic indicators have bolstered the greenback lately. In addition, the market is increasingly pricing in a Republican victory this November, with Trump winning the presidency and his party controlling both chambers of Congress. Analysts warn that the euro could face additional pressure if the U.S. implements a global baseline tariff, potentially leading to retaliation from other countries. This could result in higher U.S. interest rates to combat inflation, further weakening EURUSD. Moreover, increased bets on more aggressive rate cuts by the European Central Bank (ECB) are also weighing on the pair.
Investors are turning their attention to the U.S. October employment report, which is expected to be impacted by the recent workers' strike at Boeing and Hurricane Milton. ‘The market will be looking quite closely for more signs into what's happening in December. (It's) going to be listening to what the reaction is to the stronger nonfarm payrolls numbers. It comes down to the Fed's reaction function’, said Peter Vassallo, FX portfolio manager at BNP Paribas Asset Management. At the same time, traders should note that the week leading up to the U.S. election could be very volatile, with the potential for uncorrelated and sharp market moves due to unexpected economic data and political events amid limited liquidity.
EURUSD was falling slightly during the Asian and early European trading sessions. Today, USD-related pairs may experience some extra volatility due to the release of two macroeconomic reports: JOLTS and CB Consumer Confidence at 2:00 p.m. UTC. The data and their results may noticeably impact EURUSD. If the reports indicate the underlying strength in the U.S. economy, EURUSD will continue to fall, possibly below 1.07630. Conversely, weaker-than-expected results may provoke a rebound above 1.08400.
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