FOREX Fundamental analysis for EUR/USD on October 22, 2024
Europe's main fear is the presidency of Donald Trump. For EUR/USD bulls, the greatest threat is the pair's fall to the parity level. These two risks are linked, as Trump promises to impose 10% tariffs on imports. According to ABN Amro forecasts, this could lead to a reduction in exports from Europe to the United States by almost a third (€460 billion), which would lead to a 1.5% drop in European industrial production. The eurozone, already weakened, risks falling into recession, which will put the euro on the edge of the abyss.
Europe has already faced Trump's policies when he was president for the first time. But now his ambitions for trade duties have grown significantly, and the Eurozone economy is weakened by the pandemic, the war in Ukraine and the energy crisis. Today, European exports are threatened by American protectionism, slowing Chinese growth and a weakening global economy, which makes the situation extremely dangerous for the region.
It is not surprising that investors choosing between the US dollar and the euro in the last three weeks have made a clear choice in favor of the greenback. In early October, speculators reduced their "bearish" positions on the dollar from $13 billion to a neutral level. JP Morgan believes that the demand for hedging forex risks related to the US presidential election will continue to grow, which will support the USD index.
The fall in EUR/USD is associated not only with worries about the possible return of Trump and new trade wars, but also with a reassessment of the prospects for easing the Fed's policy. In September, the Fed stepped up, but after positive economic data, such as GDP growth of 3.4% for the third quarter and good indicators on employment and retail sales, doubts arose about the need for such a rapid rate cut.
Differences in the economic growth rates of the United States and the Eurozone, which may intensify with the resumption of trade wars, along with differences in the approaches of the Fed and the ECB to monetary policy, indicate the priority of selling EUR/USD with targets of 1.071 and 1.06. We continue to hold short positions open at 1.0865.
EUR/USD Technical analysis
Since the beginning of the week, the short-term downward trend of EUR/USD has continued. Sellers repeated testing the low on October 17th. If the fall continues, the pair will reach the Target zone of 1.0794 - 1.0777.
If an upward correction starts from current prices, then we can wait for the asset to recover to the resistance area 1.0916 - 1.0907. After testing this zone, we will consider selling EUR/USD with the first target at 1.0863 and the second at 1.0811.