From a macroeconomic standpoint, the EURUSD pair is facing significant headwinds, though traders could see a change in the next few months. Several key factors may come into play here, i.e.:
1. Monetary policy. The European Central Bank (ECB) is widely anticipated to loosen its stance. Meanwhile, the US Federal Reserve (Fed) is showing reluctance to commit to a near-term rate cut, keeping its borrowing costs at 4% compared to the ECB's 2.15%.
2. GDP growth. The eurozone is grappling with weak economic momentum and the risk of stagnation, particularly in powerhouse Germany, which is further compounded by political uncertainty in France. Across the Atlantic, US growth is also slowing, yet the economy is on track for a softer landing, backed by a labor market that, while cooling, is still holding up.
3. Account balance. The eurozone's latest account figure came in at just €11.9 billion, falling well short of the €22.5 billion forecast. This disappointing data adds to the region's gloomy outlook.
4. Geopolitics and demand. Ongoing geopolitical tensions, including US-China rivalry, are now boosting demand for the dollar as a go-to safe-haven asset. This role consistently provides a floor for the greenback whenever universal threats spike.
5. Public debt. On top of everything, France's budget problems are raising new concerns about debt sustainability in the eurozone. With global risks generally tilted to the downside, such an environment offers broader support for the US dollar.
The short-term picture for the euro is clouded by a mix of unfavorable forces. The key driver is the clear policy divergence between the Fed and the ECB. As the US regulator adopts a "wait-and-see" stance, persistent expectations for its European counterpart easing keep weighing on the single currency.
EURUSD is facing more pressure from a trio of headwinds: sluggish eurozone macroeconomic data (especially from Germany), a surprisingly low current account surplus that weakens the euro's fundamental backing, and geopolitical uncertainty that boosts the dollar's safe-haven appeal.
Looking ahead, however, these dynamics may start to change. The IMF expects weak global growth and declining inflation to pave the way for coordinated central bank easing in the medium term.
This suggests markets are right to anticipate a Fed rate-cutting cycle, which would narrow the dollar's advantage. In the eurozone, inflation at 2.2% (close to the 2% target) could give the ECB leeway to avoid overtightening.
Despite this potential shift, the current EURUSD setup is bearish. Technically, the pair faces significant resistance above 1.1650. Selling into rallies near this zone is the preferred play, with an initial target to break the July low and hit 1.1350.
The overall recommendation is to sell EURUSD from 1.1650. Profits are taken at 1.1350. Stop loss is set at 1.1800.
Calculate your open position so that a potential loss (protected by a Stop Loss order) is limited to 1% of your deposit. If your account balance does not allow entering a position of this size, it is better to skip the trade and wait for other market signals that meet low-risk criteria.
This content is for informational purposes only and is not intended to be investing advice.
