ECB to Continue Rate Cuts Amid Economic Concerns, Global Trade Risks Weigh on Eurozone Growth

The European Central Bank (ECB) is expected to continue lowering interest rates to stimulate economic growth as inflation nears its 2% target, with policymakers highlighting the need for rates to support, rather than hinder, growth.

U.S. trade tariffs under President-elect Donald Trump have raised concerns about euro zone growth, with policymakers like de Guindos and Joachim Nagel prioritizing the economic impact over inflationary effects. Trump's protectionist agenda could spark significant global trade disruptions, potentially leading to weaker growth and lower ECB rates. Analysts warn of a prolonged industrial recession in Europe, compounded by weak demand and rising energy costs, despite stable employment figures offering hope for a soft landing.

Germany's economy is expected to underperform compared to other advanced economies through 2026. Economic forecasts indicate continued stagnation, with GDP contracting by 0.1% in 2024 before a modest recovery to 0.7% in 2025 and 1.3% in 2026—below the eurozone's average growth. Persistent structural issues, weak industrial demand, and competition from China exacerbate Germany's challenges, despite potential gains from increased domestic demand as inflation eases. Inflation is projected to decline from 2.4% in 2024 to 1.9% by 2026.

Political instability, including the collapse of Germany's ruling coalition, adds fiscal uncertainty, though officials assured that government obligations will be met. Economic pressures have also shifted the Bundesbank’s stance, emphasizing growth stimulation over inflation control. Falling property prices and weak exports further strain economic recovery.

The dollar index rose on Tuesday, initially boosted by safe-haven demand following Russia's announcement about lowering its nuclear strike threshold. However, this surge eased after clarifications from Russian and U.S. officials. The dollar's rally also reflects expectations that the Federal Reserve might slow the pace of interest rate cuts, with market odds of a December rate cut dropping to 59.1% from 76.8% a month ago.

In the housing market, U.S. single-family homebuilding dropped in October, partly due to hurricanes disrupting activity in the South. While permits for future construction edged higher, a significant rebound is unlikely amid high mortgage rates. Residential investment continues to weaken, with economists revising fourth-quarter GDP growth estimates slightly lower to 2.4%, down from 2.5%, following 2.8% growth in the third quarter.

Data for Technical Analysis (1D) CFD EUR/USD

Resistance : 1.0602, 1.0621, 1.0650

Support : 1.0544, 1.0525, 1.0496

1D Outlook

Source: TradingView 

Buy/Long 1 If the support at the price range 1.0484 - 1.0544 is touched, but the support at 1.0544 cannot be broken, the TP may be set around 1.0623 and the SL around 1.0454, or up to the risk appetite.

Buy/Long 2 If the resistance can be broken at the price range of 1.0602 - 1.0662, TP may be set around 1.0726 and SL around 1.0514, or up to the risk appetite.       

Sell/Short 1 If the resistance at the price range 1.0602 - 1.0662 is touched, but the resistance at 1.0602 cannot be broken, the TP may be set around 1.0544 and the SL around 1.0692, or up to the risk appetite.

Sell/Short 2 If the support can be broken at the price range of 1.0484 - 1.0544, TP may be set around 1.0450 and SL around 1.0632, or up to the risk appetite.       

Pivot Points Nov 20, 2024 03:26AM GMT