The euro recorded a price of 1.0210 against the US dollar on Monday, its lowest level since January 13, 2025, when it reached 1.0178. It is currently trading near 1.0300 levels. The negative momentum of the EUR/USD pair appears to dominate the upcoming phase, driven by several fundamental and technical factors.
Fundamental Factors:
- The European Central Bank (ECB) cut interest rates last week by 25 basis points, from 3.00% to 2.75%. This marks the fifth rate cut since the ECB began its easing monetary policy in June of last year, with expectations of further cuts in the near future.
- The Eurozone Manufacturing PMI has been in contraction since July 2022, indicating continued weakness in the manufacturing sector, particularly in Germany, France, and Italy. Spain, however, is an exception, as its manufacturing sector continues to grow.
- In contrast, the US is witnessing strong economic data, such as the ISM Manufacturing PMI, which recorded growth of 50.9 in December, exceeding expectations (49.3) and the previous reading (49.2), reaching its highest level since August 2022. Additionally, the Manufacturing PMI rose to 51.2, surpassing both expectations (50.1) and the previous reading (49.4).
- The Federal Reserve kept interest rates unchanged last week at 4.25% – 4.50%, with expectations of maintaining high rates for an extended period.
- A key factor supporting the US dollar’s strength against most foreign currencies is President Donald Trump’s threats to impose tariffs on several countries, including the European Union.
- The ongoing yield gap between German and US government bonds continues to pressure the euro against the dollar. For instance, the yield on German 10-year government bonds is around 2.418%, while the yield on US 2-year Treasury bonds stands at approximately 4.581%. This creates a yield gap of about 2.163%, encouraging carry trade strategies.
Technical Factors:
- A bearish crossover has occurred between the MACD (blue) and the Signal Line (orange), indicating continued negative momentum for the EUR/USD pair.
- The Positive Directional Movement Index (+DMI) stands at approximately 18, while the Negative Directional Movement Index (-DMI) is around 28. The significant gap between these indicators suggests strong selling pressure on the euro. More importantly, the Average Directional Index (ADX) is at 28, reflecting strong bearish momentum.
- The Relative Strength Index (RSI) currently stands at around 42, signaling continued negative momentum for the EUR/USD pair.
Support and Resistance Levels:
- Support: If the pivot level of 154.32 is broken, the EUR/USD pair may target support levels at 152.65, 151.43, and 149.76.
- Resistance: If the pivot level is surpassed, the pair could target resistance levels at 155.54, 157.21, and 158.43.
Please note that this analysis is provided for informational purposes only and should not be considered as investment advice. All trading involves risk.
