The EUR/USD pair is experiencing a correction after being rejected above the 1.0400 level earlier this week. This movement follows disappointing economic data from Germany and the broader Eurozone, which has added pressure on the euro. On Wednesday, the pair was trading around 1.0320, reversing much of its initial gains for the week. One of the key factors behind the decline was the German factory orders data for November, which showed a sharp contraction of 5.4%, significantly worse than the expected 0% change. This downturn in the manufacturing sector came at a particularly challenging time, with the German political landscape gearing up for elections on February 23. These developments have raised concerns about the overall economic health of Germany, which is one of the largest economies in the Eurozone.
In addition to the economic data, there are increasing tensions surrounding geopolitical events, particularly with President-elect Donald Trump's rhetoric on the global stage. Trump’s statements, such as his ambitions regarding the incorporation of Greenland, Panama Canal, and Canada into the United States, have stirred markets and added an element of uncertainty. Furthermore, Trump’s remarks about addressing US interest rates, which he considers too high, could impact the global financial environment.
From a market perspective, the data from Germany and the Eurozone paints a concerning picture. In November, German retail sales fell by 0.6%, underperforming the positive expectations of 0.5%. On the broader Eurozone front, consumer confidence remained largely unchanged, while industrial confidence came in lower than expected, further highlighting concerns over economic activity in the region. On a more positive note, the Producer Price Index for the Eurozone saw a 1.6% increase, which exceeded the forecast of 1.5%.
German Bund yields also continued to rise, reaching a six-month high of 2.517%, signaling increasing market nervousness. European equities have remained slightly positive, outperforming the negative sentiment seen in Asia, where regional stocks are on track to close lower.
Technically, the EUR/USD pair faces critical support levels. The recent correction has put the pair back on a path toward 1.02, with 1.0294 acting as the immediate line of defense. If the pair breaks below this level, it could move toward a new two-year low around 1.0224, with the possibility of heading toward parity, a level that many traders are watching closely. On the upside, the 1.0440 resistance level is pivotal for a potential recovery. Breaking this level would open the door for a move higher, potentially testing the 55-day simple moving average (SMA) at 1.0549.
Overall, the EUR/USD pair is facing significant challenges, with weak German data, geopolitical uncertainty, and broader economic concerns putting downward pressure on the euro. The ongoing political developments in Germany, along with the potential impact of US policy changes, will likely continue to weigh on the euro in the coming weeks. Traders will be closely monitoring further economic releases and technical levels to gauge the next moves in the EUR/USD pair.
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