The EUR/USD currency pair has fallen to a fresh multi-month low, currently hovering around the 1.0620 level, impacted by several defining factors. The US dollar is buoyed by post-election trading dynamics linked to the policies of President-elect Donald Trump, while uncertainties in German politics further weigh on the EURO and drive the exchange rate lower. Concerns about potential tariffs on European exports to the US are also contributing to negative sentiment surrounding the shared currency.
On Tuesday, the EUR/USD pair extended its decline for the third consecutive day, marking its fourth negative movement in the last five trading sessions. The ongoing strength of the US dollar is largely tied to expectations that Trump’s protectionist strategies may lead to increased inflation in the long run, thereby constraining the Federal Reserve’s ability to implement significant monetary easing. Current market pricing estimates approximately a 65% chance of a 25-basis-point rate cut at the upcoming Federal Open Market Committee meeting, which is buoying US Treasury bond yields and supporting the dollar.
The political scene in Germany adds another layer of complexity. The dismissal of Finance Minister Christian Lindner by Chancellor Olaf Scholz has removed the fiscally conservative Free Democratic Party from the ruling coalition, intensifying concerns over fiscal policy and economic reform. The remaining coalition partner, the Greens, is now advocating for an early parliamentary election, which could lead to a snap vote. This political instability further diminishes confidence in the EURO , suggesting continued downward pressure on the EUR/USD pair.
As traders seek direction, they will be looking closely at forthcoming economic indicators, including the final German Consumer Price Index and the ZEW Economic Sentiment report. In addition, market participants are eagerly awaiting key speeches from Federal Reserve officials and forthcoming US consumer inflation data, which will likely shape expectations regarding future interest rate decisions. Given the prevailing circumstances, any attempted recoveries in the currency pair may be brief and viewed as selling opportunities.
From a technical standpoint, the Relative Strength Index indicates the potential for further bearish movement, with significant support expected near the 1.0600 level. Should selling pressure persist, the next support levels to watch would be 1.0540 and the psychological 1.0500. Conversely, if the pair experiences upward momentum, immediate resistance is found at around 1.0660 – 1.0665, with further resistances at 1.0700 and potential for a surge towards the 1.0800 level if it breaks above the 1.0725 – 1.0730 region.
