EUR/USD Outlook: Navigating Economic Challenges and Market Dynamics

During the early Asian trading session on Monday, the EUR/USD pair experienced a slight downturn, primarily due to the resurgence in demand for the US Dollar (USD). The pair is currently trading near 1.0935, marking a 0.08% decline for the day.

Contributing to the limited upside of the Euro (EUR) is the macroeconomic landscape. Notably, Germany, the powerhouse of the European economy, reported a modest economic slowdown commencing the second half of the year. The German Gross Domestic Product (GDP) for Q3 indicated a contraction of 0.1% quarterly and 0.4% annually, exacerbating concerns about economic growth.

European Central Bank (ECB) Vice President Luis de Guindos highlighted the downside risks to the European economic outlook and cautioned that inflation might rise again in the coming months.

Despite this, he suggested that sustained current interest rates could help control inflation. This economic backdrop in Germany might place downward pressure on the EUR and pose challenges for the EUR/USD pair.

Additionally, the German constitutional court’s decision last week, which deemed the reallocation of unspent COVID-19 emergency funds to current spending plans illegal, has created a significant funding gap in the German budget. This decision notably impacts climate policy initiatives, as reported by CNBC.

In the United States, recent data showed mixed signals. The S&P Global Composite PMI remained stable at 50.7 in November, but the Manufacturing PMI fell to 49.4, below expectations. In contrast, the Services PMI saw a modest increase, exceeding market forecasts.

Investors and traders will closely watch upcoming economic releases, including the Eurozone Consumer Confidence, German Retail Sales, CPI, and Eurozone Harmonized Index of Consumer Prices (HICP).

On the US front, housing data, Consumer Confidence, GDP, and ISM Manufacturing PMI will also be significant.

The technical outlook for the EUR/USD pair shows it fluctuating within a tight range, currently near the 1.0960 level. Market participants are anticipating a build-up of positive momentum that could propel the pair higher, potentially breaching key levels to confirm a continuation of the bullish trend. This trend is supported by the EMA50, provided the pair maintains stability above the 1.0860 level.

The trading range expected for today lies between 1.0870 support and 1.1030 resistance, with a bullish trend anticipated.

EUR/USD Live Chart