EUR/USD forecast: Forex Friday – November 29, 2024

What is driving the EUR/USD forecast right now?

With many US investors still out after being off for Thanksgiving yesterday, the key theme that has emerged in the last few days is the easing of tariff fears. This came after President-elect Donald Trump said his “wonderful” phone call with Claudia Sheinbaum resulted in with the Mexican President agreeing “to stop migration through Mexico.” Other currencies that had come under pressure of late including the euro, rebounded. However, we will maintain our bearish EUR/USD forecast for the time being. This pair remains rooted in a bear trend, not just because of the threats of tariffs in 2025, but more so because of weakness in the eurozone economy and therefore the potential for more ECB rate cuts than from the Fed in the US, where even a December rate cut is not fully priced in, let alone cuts in 2025, after Trump’s election victory. Additionally, political turmoil in France and looming election in Germany are additional factors that will probably hold the single currency back. Insofar as today’s session is concerned, month-end flows into the US dollar may prevent it from weakening further, potentially keeping the EUR/USD below the pivotal 1.06 resistance level.

French political turmoil also weighing on EUR/USD outlook

Four months after the French snap elections, the country remains in political turmoil, mirrored by the CAC stock index's significant underperformance. Prime Minister Michel Barnier has warned of a potential financial “storm” should lawmakers reject the government’s budget proposals.

Marine Le Pen’s far-right National Rally is intensifying pressure on the fragile coalition, threatening to withdraw its support unless the government revises its plans to address France's soaring deficit. Le Pen has given Barnier until Monday to meet her demands and alter his budget strategy.

The budget deadlock has pushed the government to the edge, as it struggles to tackle the fiscal deficit. Barnier now faces a no-confidence motion from Le Pen and her party, which has pledged to bring down his administration if their conditions are not met.

The crisis began in June, when President Emmanuel Macron called a snap election following his party’s resounding defeat to the National Rally in the European elections. That loss left France with a hung parliament, deepening the political impasse.

European consumer spending and confidence take a tumble

The latest data paints a mixed picture of the Eurozone economy, with particular area of concern being the health of the consumer:

• Eurozone inflation ticked higher as headline CPI rose to 2.3% from 2.0%, aligning with forecasts, while core CPI held steady at 2.7%, defying expectations of a slight increase. German import prices climbed by 0.6% month-on-month, exceeding projections, hinting at potential upward pressure on inflation.
• Consumer activity in Germany showed weakness, as retail sales dropped by 1.5% month-on-month, significantly missing the expected -0.5%. However, an upward revision to the previous month’s data (from 0.9% to 1.6%) partially offset this disappointment. Meanwhile, German unemployment figures were less dire than forecast, with only 7,000 new jobless claims compared to the 20,000 expected.
• In France, consumer spending fell by 0.4% month-on-month, a sharper decline than the anticipated -0.1%, indicating weaker consumption. On the brighter side, French GDP met expectations, expanding by 0.4% quarter-on-quarter.

Despite some resilience in labour markets, the decline in retail sales and consumer spending reflects growing pressure on household budgets across the region, raising concerns about the sustainability of consumer-driven growth.

This week’s other key Eurozone data came from Germany in the first half of the week, was the GfK Consumer Climate index, which unexpectedly dropped to -23.3, signalling a renewed wave of pessimism among German consumers. This decline followed the drop in the German IFO Business Climate index, a key measure of business sentiment, earlier this week.

With fears of a looming winter recession mounting and political uncertainty weighing heavily on sentiment in both Germany and France, the economic outlook for the region remains bleak, providing a bearish EUR/USD outlook and backdrop.

EUR/USD technical outlook

Source: TradingView.com

Despite the recovery, the EUR/USD could find resistance again as it tests the technically-important 1.0595-1.0610 area. While this zone holds as resistance, we will not change our bearish EUR/USD outlook. The next level of support to watch is around the 1.0500 zone which has been reclaimed this week. Any move below 1.0450 area could pave the way for a trend resumption towards 1.0300 handle next. Meanwhile, if resistance at 1.0600 breaks decisively then we may see a short-squeeze rally towards 1.0700 next.

-- Written by Fawad Razaqzada, Market Analyst

Follow Fawad on Twitter @Trader_F_R

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