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EUR/USD, Oil Forecast: Two trades to watch

Article By: ,  Senior Market Analyst
November 21, 2024 9:43 AM

EUR/USD struggles below 1.0550 as headwinds mount

  • Russian-Ukraine tension & Trump trade tariff concerns weigh
  • Eurozone consumer confidence & US jobless claims
  • EUR/USD falls towards 1.05

EUER/USD is falling for a third straight session as the market mood sours amid concerns over rising geopolitical tensions between Russia and Ukraine and worries regarding possible US tariffs on the EU under the Trump administration. ECB-Fed monetary policy divergence keeps pressure on EUR/USD.

ECB policymaker Francois Villeroy de Galhau said that the balance of risks to inflation is shifting to the downside and that the ECB should continue to ease monetary policy. These comments support the view that the ECB will continue cutting rates with a 25 basis point rate reduction expected in December.

Looking ahead, attention will be on eurozone consumer confidence data, which is expected to improve modestly to -12.4, up from -12.5.

ECB chief economist Philip Lane is also due to speak.

Meanwhile, the US dollar is holding steady on Thursday after booking solid gains yesterday. The market awaits further clarity on the outlook for Trump's proposed policies and amid expectations of less aggressive rate cuts from the Federal Reserve.

Less dovish comments from Federal Reserve officials have the market questioning a December rate cut. The market is pricing in a 54% possibility of a 25 basis point cut, down from 82% just a week ago. The market is also expecting fewer cuts in 2025 than expected a month ago due to the risk of higher inflation from Trump's policies.

Today, attention will be on US jobless claims and existing home sales for further clues into the health of the US economy.

EUR/USD forecast – technical analysis

Failure to rise above 1.06 keeps bears in control of EUR/USD. Sellers supported by the RSI below 50 will look to take out 1.05 to extend losses towards 1.0450, the 2023 low. Below, the 1.04 round number comes into play.

Any recovery would need to rise above 1.06, the April low, and 1.0670 to negate the near-term selloff and bring 1.07 into play.

Oil rises amid escalating geopolitical tensions.

  • Russia – Ukraine geopolitical tensions rise.
  • Oil inventories rise by more than expected
  • Oil rises towards 70.00

Oil prices are heading higher after small losses yesterday, as concerns over geopolitical tensions between Russia and Ukraine overshadowed the impact of a larger-than-expected increase in crude oil inventories.

Ukraine fired more missiles into Russia using Western weapons. Russia had said that the use of Western weapons to strike Russian territory would mark a significant escalation in the conflict. While Russian oil exports aren't being impacted, this could change quickly should Ukraine target Russian energy infrastructure.

The other risk is how Russia could respond after Russian President Putin lowered the threshold for a nuclear response earlier this week.

Norway's Equinor oilfield has fully restored output and is back online, recovering from a power outage in its North Sea oil field earlier in the week.

On the demand side, US crude and inventories rose by 545k barrels in the week ending November 15, ahead of the expected 138k barrel increase. Gasoline inventories rose by more than forecast while distillate stockpiles posted a larger-than-expected draw.

Looking ahead, OPEC+ could oppose the unwinding of voluntary production cuts when it meets on December 1st, given the weak global oil demand picture and concerns about a supply surplus next year. OPEC+ had planned to gradually reverse output cuts starting December and into 2025, although this has already been pushed back once.

Oil forecast – technical analysis

Oil has recovered from the weekly low of 66.5, heading towards 70k. The price continues to trade in a familiar holding pattern, capped on the upside by 71.50- 72.50 and by 67.50 on the downside.

Sellers will need to take out the 67.50 support zone to extend losses towards 65.50.

Buyers will need to break above the 71.50 – 72.50 zone to create a higher high and head towards 75.00.

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