Original Article by Zard Lam, courtesy of Futu News: “EUR/USD Monthly Forecast: Bulls Face Challenges in November As…”
EUR/USD Monthly Forecast: November Brings Headwinds for Bulls
The EUR/USD currency pair has experienced persistent pressure over recent months, and as the calendar shifts into November, bullish momentum appears to be struggling amid macroeconomic headwinds and central bank dynamics. As regional economies continue to realign policies post-pandemic and amid inflationary concerns, the euro finds itself in a precarious position against the strengthening dollar.
In October, EUR/USD closed with slight gains but registered overall weakness, faced with a U.S. dollar that was impervious to risk rallies. As November unfolds, traders and analysts are closely evaluating how monetary policy divergence and economic data will affect the forex market’s most traded currency pair.
This article provides a comprehensive analysis of the fundamental and technical outlook for the EUR/USD pair in November.
Macroeconomic Overview
The fate of the EUR/USD pair hinges on a range of macroeconomic indicators, especially those influencing interest rate expectations.
United States:
– The U.S. economy has shown signs of resilience, particularly with Q3 GDP growth surprising markets with robust expansion.
– The Federal Reserve has paused its rate-hiking cycle, but Fed Chair Jerome Powell left the door open for more hikes if inflation pressures persist.
– U.S. Treasury yields remain elevated, providing underlying support for the dollar.
– Inflation, although showing signs of easing, still rests above the Fed’s 2 percent target, giving the central bank reason for its hawkish tone.
Eurozone:
– The European Central Bank (ECB) held rates steady last month, indicating a peak in the tightening cycle.
– Euro area inflation showed continued decline, yet energy prices remain a concern as winter approaches.
– Eurozone growth forecasts are being revised downward, suggesting a stagnating regional economy.
– PMI data showcased consistent contraction in both manufacturing and service sectors across key EU member states.
Key Events in November to Watch
Monetary Policy Decisions:
– Federal Reserve: Although the Fed refrained from hiking interest rates in its last policy meeting, Powell signaled readiness to act again if inflation stays sticky. Any additional hints of a rate increase in December could tilt EUR/USD lower.
– European Central Bank: With the ECB indicating a pause, markets are unlikely to price in further hikes. Any dovish cues will further undermine the euro.
Economic Data Releases:
– U.S. Non-Farm Payrolls (NFP): Labor market strength remains a pillar of U.S. economic resilience. Another strong NFP report could create fresh interest in the greenback.
– Eurozone CPI: Inflation prints will influence ECB expectations. A sharper-than-expected fall could reinforce bearish EUR sentiment.
– German and French PMI: Weak readings from the eurozone’s largest economies could impact risk appetite and affect rate outlooks.
– U.S. CPI: This remains critical for determining whether inflationary pressures are lingering and how the Fed may react.
Geopolitical Risk:
– Rising tensions in the Middle East and concerns about global trade disruptions still have the potential to boost safe-haven demand for the U.S. dollar.
– Energy prices, especially European dependency on external natural gas supplies, remain a looming concern for euro stability.
Central Bank Divergence
An important theme driving EUR/USD remains the divergence in central bank policies. While both the ECB and Fed are nearing or at the peak of their respective cycles, the aggressive language from the Fed contrasts strongly with the ECB’s cautious tone.
Federal Reserve:
– The Fed has kept markets on alert with accompanying statements that it is not yet done fighting inflation.
– The Fed Funds Rate at 5.25 to 5.50 percent continues to support the dollar through high yield attractiveness.
– Powell’s mention of data dependence grants flexibility, but markets continue to price fewer cuts in 2024 than earlier expected.
European Central Bank:
– Christine Lagarde stated the ECB believes “interest rates have reached levels that
Read more on EUR/USD trading.