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After a sharp decline last week, the EUR/USD bounced back. The rebound was attributed to Donald Trump’s announcement that he would name hedge fund manager Scott Bessent as Treasury Secretary.
Given that Bessent is expected to put political stability first and ease worries about sweeping tariffs, the decision provided investors with some relief and a sense of stability
Despite this rebound, the currency pair remains near two-year lows, weighed down by mounting concerns about downside risks to the Eurozone economy.
PMI data showed ongoing weakening in Eurozone economic activity, which put pressure on the euro. The HCOB Flash Eurozone Composite PMI dropped from 50.0 in October to 48.1 in November, much below the 50.0 forecast. For the first time in 10 months, this drop shows a contraction in the services sector.
The probability of an aggressive rate cut by the ECB has increased in the wake of the Eurozone PMI data that was lower than anticipated. Prior to the announcement of the PMI data, market expectations for a 50-basis point cut in interest rates, bringing them down to 2.5%, were less than 20% now are above 50%.
The US Dollar Index peaked on Friday at 108.07, a two-year high, and has since eased to about 107.00. However, downside risks for the USD remain limited, as recent economic data has strengthened expectations that the Fed may slow the pace of rate cuts.
With the S&P Global US Composite PMI rising to 55.3 in November, private sector activity grew at its fastest rate since April 2022. With a substantial increase in the services sector since March 2022, the US Services PMI jumped to 57.0, much above the market’s forecast of 55.2. The US Manufacturing PMI, meanwhile, increased very little to 48.8, in line with market expectations.
EUR/USD rebounded despite the German IFO Business Climate Index missed estimates with 85.7 in November.
The currency pair will be quite volatile this week with the upcoming FOMC minutes on Tuesday, and GDP data with the Core PCE Index and unemployment claims
Technical Analysis
Source: TradingView
Price looks to be in a strong downtrend. The pair rebounded after touching 2-year lows at 1.03400 with a bullish gap that puts the price near the bearish channel’s resistance line. Price remains pressured under the 100-period EMA.
The downward momentum is also reinforced by the RSI, which stands below the midline near 47.03. If price moves below support at 1.04, traders will be watching further bearish moves. Conversely, a move back above the 1.054 level could signal a potential bullish trend reversal.
