• EUR/USD rebounds to near 1.0550 as investors look for novel signals regarding a likely Fed-ECB interest rate decision in December.
• Powell from the Fed emphasized that there is no need to rush to reduce interest rates.
• Fears of a trade war between the US and the euro zone have intensified among investors.

EUR/USD is rebounding from the psychological support at 1.0500 from the beginning of the week. The major currency pair is bouncing as the US dollar’s (USD) rally stalls after recording a novel yearly high. The U.S. Dollar Index (DXY), which measures the dollar’s value against six major currencies, is looking for fresh stimulus that could extend its rally above key resistance at 107.00.

According to analysts at Capital Economics: “While a period of consolidation seems likely in the near future, we have increased our US dollar forecasts and now anticipate the US dollar to continue to appreciate by another 5% by the end of 2025.” The economists added: “This is based primarily on the view that President-elect Donald Trump will continue with the basic tariff policies he proposed during the campaign and that the United States (US) economy will continue to outperform his main competitors.” .

Investors are looking for novel clues to how Trump’s policies will guide monetary policy actions at the December meeting and in 2025. Meanwhile, Federal Reserve (Fed) officials are refraining from forecasting the likely consequences of Trump’s policies on the economy and interest rate policy. At an event Thursday at the Federal Bank of Dallas, Fed Chairman Jerome Powell said, “I think it’s too early to make judgments on this.” Powell added: “We don’t really know what policies are going to be put in place.”

On the interest rate outlook, Jerome Powell said the economy is not sending any signals that could force us to cut rates further, but reiterated that inflation remains on a sustainable path toward the bank’s 2% target, which allows them remain constant towards the neutral rate.

This week, investors’ attention will focus on preliminary S&P Global Purchasing Managers Index (PMI) data for November, which will be released on Friday. PMI data will show the current state of private business activity and the impact of Trump’s victory on business optimism.

Daily market development summary: EUR/USD measures momentary support despite deterioration in euro zone economic outlook

• EUR/USD is recovering ahead of European Central Bank (ECB) President Christine Lagarde’s speech at an event in Paris scheduled for 18:30 GMT. Investors would like to know how Trump’s protectionist policies will affect the euro zone economy. Moreover, market participants will be looking for clues as to the likely size of the interest rate cut at the December meeting.
• Fears of a trade war between the euro zone and the United States have deepened following comments by Stephen Moore, a senior economist adviser to Donald Trump, who told BBC Radio over the weekend that the US would be less interested in a free trade agreement with the UK’s EU if the government submitted its economic relations with the European Union (EU) ahead of those with the US, Reuters reported.
• ECB Vice-President Luis de Guindos said on Monday: “The balance of risks has shifted from concerns about high inflation to concerns about economic growthThe spark for a trade war between the euro zone and the United States was sparked when Trump mentioned in his election campaign that the euro bloc would “pay a high price” for insufficient purchases of American exports.
• According to ING analysts, the ECB is expected to cut interest rates again in December, but a 50 basis point (bp) cut is not certain.

Technical Analysis: EUR/USD is aiming to strengthen near 1.0500

During North American trading hours on Monday, EUR/USD is hovering above immediate support at 1.0500. The outlook for the major currency pair remains bearish as all short- and long-term exponential moving averages (EMAs) decline.

The 14-day relative strength index (RSI) is hovering in a bearish range of 20.00-40.00, which is evidence of further weakness in the near future.

Looking down, the pair is expected to find a cushion near the October 2023 low around 1.0450. On the other hand, the key barrier for bulls in the euro zone will be the resistance at the round level of 1.0600.

(This story was corrected on November 18 at 08:08 GMT to show US S&P Global PMI data for November will be released on Friday, not Thursday.)