- Trump initiated the trade war even before taking office, targeting China, Canada, and Mexico as the first nations to face tariffs on imports. The aim: to reduce illegal immigration, drug trafficking, and the trade deficit.
- Europe continues to navigate rising inflation in certain Eurozone countries. The severe German crisis remains unresolved, and the European Central Bank (ECB) will need to consider this in its upcoming rate decision for December.
- EUR/USD confirmed the breakdown of key support levels by the close of November. Now, all eyes are on central banks.
Euro’s December Rebound Potential Amid US Tariff Threats and ECB Uncertainty
December is typically the best month for the euro, and the fact that Trump has yet to make Europe the focal point of his early tariff declarations could aid the euro in a rebound, possibly diverting parity as a near-term target. Until the end of November, a seasonal strengthening of the dollar was expected, but moving forward, the euro needs to make a stronger case, especially since January and February will be challenging months for the single currency.
US Treasury Secretary nominee Scott Bessent has already clarified that the dollar will remain a strong currency, reflecting the solid fundamentals of the US economy. The three pillars underpinning the US fiscal policy will include reducing the public deficit, targeting 3% growth, and adding 3 million barrels of oil per day to production. And, of course, tariffs.
Trump’s first move has targeted trade barriers on goods imports from neighboring countries like Canada and Mexico, and a direct competitor like China. Official reasons include tackling drug trafficking and illegal immigration, but the real issue lies in the accumulated trade imbalance over recent years. Mexico has overtaken China as the primary trading partner, but many of the same Chinese products (along with drugs) indirectly enter the US through the vulnerable Mexican border.
2025 will also mark the end of Jerome Powell’s term as the head of the Federal Reserve, and while markets paint an idyllic picture, tensions between the government and the central bank could be a factor to watch as a shadow presidency begins to take shape in Washington. Meanwhile, the ECB is inching closer to the long-awaited rate cut, with mixed inflation data complicating matters. Inflation is still falling in Germany but rising in Spain and France. In Frankfurt, the consensus remains that another cut in interest rates is necessary to boost an ailing economy. How much the cut will be remains an unresolved question.
Technical Analysis: EUR/USD Confirms Bearish Trend Amid Key Support Levels
As we will see in the long-term charts, EUR/USD confirms the bearish trend. However, observing the daily chart, we notice that the sideways movement since late 2022 is still unresolved. The lower support level, just below 1.05, is holding strong against the bears, and it’s clear that this is the final obstacle before parity. But we still don’t believe the conditions are right for going long on EUR/USD.
The Eurozone eagerly awaited the November inflation data, which will serve as the reference point for the ECB’s decision on a rate cut. The results, as mentioned, were mixed. On December 12, the market is pricing in a 50% chance of a 50 basis point cut, bringing the cost of money down to 1.75%. The SMI (Stochastic Momentum Index) oscillator seems to leave little doubt about what to expect for EUR/USD in 2025. The bearish medium-term signal (using quarterly candles) has consistently been deadly in predicting a deep bear market for the euro. If this pattern holds, there will be no long positions on EUR/USD until the oscillator reaches significantly oversold levels. For now, resistance levels (1.08 in particular) should be seen as entry windows, unless proven otherwise. The market will decide.
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