The EUR/USD remains on a bearish trajectory as market participants brace for another volatile week. With US CPI and Chinese GDP figures on the horizon, the currency pair faces significant headwinds. Currently trading near multi-year lows just above the 1.0200 mark, the EUR/USD is poised for its fourth consecutive monthly decline. Over the past 15 weeks, it has recorded only two modestly positive weekly closes, highlighting the strength of the bearish momentum.
This sustained weakness stems from a robust US dollar, bolstered by higher interest rate expectations in the United States, coupled with weak growth in the Eurozone and China. Political instability in Germany and France has further dampened sentiment for the euro. Given this backdrop, the EUR/USD could dip below the 1.02 level in the early part of the week.
What’s Driving the Dollar Rally?
The US dollar’s rise has been fueled by a hawkish repricing of interest rates, supported by expectations of inflationary policies under Donald Trump’s administration, set to begin later this month. Adding to this is the surprising strength of recent US economic data. Friday’s non-farm payrolls report reinforced this trend, showcasing a resilient labor market that saw 256,000 new jobs added, surpassing expectations.
The unemployment rate dropped to 4.1% from 4.2%, while average earnings rose by 0.3% month-over-month and 3.9% year-over-year, maintaining a steady pace. These robust figures have pushed US bond yields higher, with the 10-year yield approaching 4.76%, nearing October 2024’s peak of 5.02%. This dynamic underscores the hawkish stance on US interest rates, keeping the EUR/USD under pressure.
Upcoming Key Events
1. US CPI Data (Wednesday): The US Consumer Price Index (CPI) report will be closely watched. Should inflation remain persistently high, calls for a rate cut in the first half of the year will likely be dismissed. In this scenario, the dollar’s bullish trend and the EUR/USD’s bearish momentum are expected to continue. Conversely, significantly weaker inflation data could shift market sentiment, offering some relief to the euro.
2. Chinese Economic Data (Friday): China’s GDP report, along with retail sales and industrial production data, will provide crucial insights into the state of the world’s second-largest economy. A weak performance would further weigh on Chinese assets and the EUR/USD, as China’s sluggish growth has already dampened investor confidence. On the other hand, stronger-than-expected figures could mitigate concerns about deflation and provide some support to the euro.
Technical Analysis: Bearish Trend Persists
The EUR/USD remains firmly within a bearish trend, with recent lows near 1.0200 acting as a critical support level. A break below this threshold could pave the way for further declines. Resistance levels are currently capped around 1.0300, with limited upside potential unless there is a fundamental shift in market dynamics.
Conclusion
The EUR/USD forecast remains bearish, driven by a strong US dollar, weak Eurozone growth, and ongoing global economic uncertainties. With pivotal data releases from the US and China this week, traders should prepare for heightened volatility. Unless inflation or growth data surprises significantly to the upside, the euro is likely to remain under pressure against the dollar.
