The EUR/USD remains under pressure, grappling with a mix of weak Eurozone economic data, China’s economic slowdown, and persistent US Dollar strength. Mid-day trading in London saw the currency pair take another dive, driven by reports of potential tariff escalations from Washington. With critical US data releases, including non-farm payrolls, set to dominate the week, the EUR/USD faces mounting bearish momentum.
Economic Challenges Weigh on EUR/USD
The Eurozone's economic fragility continues to burden EUR/USD. German factory orders posted their sharpest decline in three months, dropping 5.4% month-on-month against a forecasted 0.3% decrease. Compounding this, French consumer confidence unexpectedly fell, further highlighting regional struggles.
Adding to these woes, China’s economic slowdown has created ripple effects that hurt the euro. A surge in demand for Chinese bonds has driven yields to historic lows, while a weaker USD/CNY reduces the purchasing power of one of the Eurozone's key export markets. Particularly impacted is the luxury goods sector, a vital component of Eurozone exports to China.
Investor sentiment surrounding China has turned notably pessimistic, with fears of a deflationary spiral growing. Chinese China 10-Year now yield a staggering 3 percentage points less than comparable U.S. Treasuries, reflecting heightened concerns about the world’s second-largest economy. This divergence between U.S. and Chinese yields has only added to the headwinds for EUR/USD.
Tariff Speculation Bolsters Dollar
Tariff headlines remain a significant driver of market sentiment. Initial reports earlier in the week hinted at a potential softening in Washington’s stance on tariffs. However, subsequent statements from Trump reaffirmed a hard-line approach, underscoring the uncertainty surrounding trade policies.
This back-and-forth has fuelled U.S. dollar strength, leaving EUR/USD traders on edge. The dollar’s resilience is tied to these developments, making it increasingly susceptible to headline-driven volatility. In this environment, active risk management is critical for navigating potential disruptions.
U.S. Data Amplifies Dollar Strength
While Europe struggles with weak economic indicators, the U.S. continues to deliver mostly positive data that reinforces dollar dominance. Key metrics released this week in the US economic calendar exceeded expectations, providing further support for the greenback, although the ADP payrolls report has disappointed today with a headline print of 122K vs. 139K expected.
Earlier this week, JOLTS job openings climbed to 8.1 million in November, surpassing both the previous month’s figure of 7.8 million and forecasts of 7.73 million. This marks the highest level of openings since mid-2024, signalling a resilient U.S. labour market. The ISM Services PMI also jumped to 54.1 from 52.1, beating estimates of 53.5 and pointing to strength in the services sector.
As a result, U.S. Treasury yields have continued to rise, with the United States 10-Year recently hitting 4.73%. Market expectations for Federal Reserve rate cuts have shifted further out, with traders now eyeing July instead of June for potential easing. All these factors are reinforcing bearish sentiment for EUR/USD.
Technical Analysis: Bearish Outlook Prevails
Source: TradingView.com
The EUR/USD remains locked in a downward trajectory, with key technical indicators pointing to continued weakness. For example, both the 21- and 200-day moving averages are sloping downward, and recent price action has stayed firmly below these indicators.
The pair faces stiff resistance in the 1.0460-1.0500 range. Unless this zone is reclaimed, the path of least resistance remains to the downside. Short-term targets include a retest of last week’s low at 1.0224, followed by psychological support levels at 1.0200 and 1.0100.