EUR/USD Hits Multi-Month Lows Amid U.S. Election Drama and Dollar Rally

EUR/USD Analysis Amid U.S. Election and Dollar Surge: Key Levels and Technical Outlook

U.S. Dollar Strengthens on Trump’s Electoral Gains

The EUR/USD has faced significant pressure as the U.S. dollar strengthens on the back of election results showing Trump leading in key states. As the race for the White House unfolds, the USD gains momentum, with the Dollar Index (DXY) surging 1.45% to 104.95, reinforcing a bullish trend across major forex pairs. This robust dollar performance, driven by Trump’s advancing position, has pushed EUR/USD sharply lower, now trading near a multi-month low around 1.0715, down approximately 1.76% intraday.

The dollar’s rally is supported not only by the election dynamics but also by solid U.S. economic data. The ISM Services PMI beat expectations, coming in at 56.0 versus the forecast of 53.8, indicating a resilient service sector that bolsters the USD. This upbeat data contrasts with mixed figures from the Eurozone, adding pressure on the euro as investors continue to favor the greenback.

EUR/USD Technical Breakdown

Immediate Support Levels

EUR/USD has slipped below the critical support at 1.0760, signaling potential for further downside. Currently, immediate support lies at 1.0715, with a more significant level at 1.0656, aligned with the 61.8% Fibonacci retracement of the recent uptrend from 1.1213. If this level is breached, the next target for EUR/USD bears lies at 1.0483, marking a 100% projection of the fall from 1.1213. This continued selling pressure highlights the market’s bearish sentiment toward the pair, particularly with the U.S. election favoring Trump and adding bullish momentum to the USD.

Resistance Levels and Moving Averages

To the upside, initial resistance for EUR/USD is seen at 1.0798. However, significant resistance lies at 1.0863, where the 50-day Exponential Moving Average (EMA) converges with the 200-day EMA around 1.0870. The pair would need to break above these EMAs to shift toward a more neutral to bullish stance. For now, however, these levels present strong resistance, limiting EUR/USD’s recovery potential amid dollar strength.

Technical Indicators

The bearish momentum is reinforced by a recent break below key technical levels, including a downtrend in the Relative Strength Index (RSI), which remains in bearish territory under 50, and a MACD trending lower. These indicators confirm a weak technical outlook, suggesting that any potential rebounds are likely to be limited unless significant bullish drivers emerge for the euro.

Election Results Fuel Dollar Rally, EUR/USD Vulnerable

As election results come in, Trump’s lead in pivotal states like North Carolina, Georgia, and Pennsylvania has boosted the dollar further, and a Republican sweep appears within reach. With Trump potentially gaining control over both the presidency and Congress, market sentiment leans heavily towards a stronger dollar. The EUR/USD’s downward trajectory reflects this, as political certainty in the U.S. supports capital flows into the USD. The Greenback has broken past resistance levels, aided by strong bond yields as the 10-year U.S. Treasury yield hits 4.44%, up over 15 basis points.

The Trump-led Republican surge could introduce pro-growth policies, such as corporate tax cuts and reduced regulations, which are inflationary. This, combined with deficit concerns, has driven Treasury yields higher, adding to USD’s appeal. Given this environment, the EUR/USD pair is expected to remain under pressure as long as the dollar retains its momentum and election-related uncertainties persist.

Eurozone Data and ECB Policy Outlook

While the U.S. dollar is surging, the euro faces headwinds from recent Eurozone economic data. French industrial production disappointed with a -0.9% decline, missing forecasts of -0.5%. Additionally, Spain’s unemployment rose by 26.8K, slightly above expectations, adding to the negative sentiment around the euro.

ECB’s Rate Cut Expectations

Eurozone data showed that GDP growth was slightly better than anticipated, prompting the European Central Bank (ECB) to reduce expectations for a larger rate cut in December. However, markets still anticipate a 25-basis-point cut at the next meeting, which would maintain a dovish stance. ECB President Christine Lagarde is expected to provide further insight in her upcoming speech, but any hints of prolonged easing could weigh further on the euro.

The contrasting monetary policies between the Fed, which is less likely to cut rates aggressively amid strong U.S. economic data, and the ECB’s continued dovish stance, are likely to maintain downward pressure on EUR/USD. As inflation in the Eurozone edges up, the ECB may face constraints in delivering aggressive cuts, yet the euro’s fundamental outlook remains weak against the dollar’s solid performance.

Bond Yields and EUR/USD Sentiment

Rising U.S. bond yields have strengthened the dollar’s appeal, with the 10-year yield spiking to 4.44%, its highest since early July. This increase is directly correlated to market expectations of a Trump victory and higher inflation risks due to anticipated deficit spending. For EUR/USD, elevated U.S. yields create further headwinds, as higher returns on U.S. assets draw capital away from euro-denominated investments.

Eurozone vs. U.S. Yield Spread

The spread between U.S. and Eurozone yields has widened significantly, reinforcing a bearish outlook for EUR/USD. With the German Bund yields failing to match the U.S. Treasury surge, the yield differential favors dollar-denominated assets, weakening the euro further. This shift indicates a continued preference for U.S. assets over Eurozone alternatives, aligning with the current downtrend in EUR/USD.

Short-Term Trading Outlook and Key Price Levels

The EUR/USD pair is likely to remain bearish in the near term, with the 1.0715 level as a critical support. If this support fails, the pair could extend losses toward the 1.0650 level, reinforcing a bearish outlook. On the upside, resistance at 1.0760 is pivotal, but significant recovery seems unlikely unless there’s a notable shift in either election results or economic indicators. Given the current election-driven dynamics, EUR/USD is expected to stay pressured, making any rallies short-lived.

Decision: Bearish Bias on EUR/USD with Limited Upside Potential

The current environment presents a bearish outlook for EUR/USD, with dollar strength dominating as U.S. election results bolster market confidence in Trump’s economic policies. The pair’s bearish technical setup, in combination with strong U.S. economic data and rising yields, adds to the downside risks. Unless the euro gains significant support from economic data or ECB rhetoric, EUR/USD is likely to face further declines.

In summary, EUR/USD is under sustained pressure from multiple fronts: election-related dollar strength, rising U.S. bond yields, and underwhelming Eurozone data. This combination positions EUR/USD with a bearish bias as the election outcome continues to favor the USD, suggesting limited recovery for the euro in the short term. Investors and traders should watch for potential shifts in ECB policy and U.S. election updates for any signs of reversal, but for now, the dollar’s strength appears to dominate.

That's TradingNEWS