Weekly EUR/USD Outlook – November 11, 2024 – Trump Victory Fuels Dollar Surge

• The United States has brought Trump back to the White House in a decisive win, enabling the tycoon to pursue many promised initiatives. These include renewed tariffs and further economic stimulus. Meanwhile, the Fed adopts a more cautious approach.
• Europe is in turmoil after Germany’s government dismissed the Finance Minister, held responsible for a severe economic crisis that threatens the entire Eurozone. Trump’s election isn’t promising news for the ECB either.
• EUR/USD broke decisively through key support levels of 1.08 on election day. Is this a bear market for the euro or a bear trap?

Dollar and Real Yields Spike as Trump Wins, While Europe Faces Economic Strain

The dollar and real yields sent clear signals before Election Tuesday, echoing the polls—Trump was on track for victory. And that’s what happened, catapulting the dollar and U.S. real rates. The typical “buy the rumor, sell the news” trend didn’t hold, and instead, the trend intensified, confirming what the market had anticipated: increased protectionism from the Trump administration, an internal economic boost (explaining the small-cap rally), and thus, more inflation. Higher dollar and interest rates followed, accompanied by fresh highs on Wall Street. Bitcoin joined in, buoyed by Elon Musk’s involvement, lending further optimism to the crypto space’s future.

But this was also the Fed’s week, delivering another widely anticipated 25-basis-point rate cut by Powell. However, this may well be the last cut if inflation expectations rise and Trump’s ambition to leave a “golden age” for the U.S. economy materializes. Powell sought balance amid questions about his relationship with Trump and future monetary policy moves, with markets less certain that December’s FOMC will result in another rate cut.

Meanwhile, Germany is reeling after the Prime Minister dismissed the Finance Minister. Differences in opinion and the will to seek parliamentary approval could meet with opposition that may lead to early elections. Germany, already weakened by frictions with Russia and China, is facing an economic downturn and an unprecedented demographic crisis undermining the public welfare system. The crisis in the automotive sector (led by Volkswagen) risks destabilizing the political foundations of what was once the Eurozone’s powerhouse.

The ECB faces its own challenges post-election. Rising U.S. long-term rates have weakened the euro, and further rate cuts could sink the single currency even more, importing inflation. With weak macro data across the Eurozone, the rate dilemma in Frankfurt is increasingly acute.

Technical Analysis: EUR/USD Bearish Breakout Signals Strong Dollar Ahead

The EUR/USD’s bearish breakout appears definitive. All signs point to a robust dollar in the coming months, supported by Trump’s inflationary policies, while Europe grapples with economic and political challenges. EUR/USD attempted to hold onto support, but the 1.078-1.08 zone collapsed, immediately pushing the exchange rate to 1.07. There’s a real possibility of a return to the 1.03/1.04 zone, pending a bullish breakout of the Dollar Index, which has yet to occur.

In the previous report, we highlighted EUR/USD’s key support levels at 1.078 and 1.08. Black Wednesday for the euro marked the start of a decisive downtrend, reaffirming the dollar’s strength by the week’s end. A divergence between oscillators and price is emerging, making confirmation of the Dollar Index’s breakout important. For now, however, the path down for EUR/USD appears clear.