• The euro collapsed on Wednesday after reports that Ukraine had hit Russia with missiles.

• Traders fear Trump’s looming tariffs on Eurozone goods.

• Economists expect the Fed to lower borrowing costs in December.

The EUR/USD forecast shows a fragile euro as investors worry about the escalating Ukraine war and Trump’s looming tariffs. Meanwhile, the greenback paused its rally as traders took profits after the Trump trade.

The euro collapsed on Wednesday after reports that Ukraine had hit Russia with missiles. The conflict between Russia and Ukraine has escalated in recent days, with Putin threatening to use nuclear power. Consequently, there is an ever-increasing risk that the war will hurt the Eurozone economy.

At the same time, traders fear Trump’s looming tariffs on Eurozone goods, which might weaken the economy. Trump has promised to impose taxes on European cars, reducing demand. This looming threat to Eurozone exports has clouded the outlook for the euro.

Elsewhere, the dollar paused its Trump rally as markets awaited new developments after the election. Currently, the president-elect is forming his cabinet, which has put a pause on policy speculations. The greenback has rallied to a one-year high against the euro amid optimism that Trump’s presidency will bring robust economic growth and higher inflation. As a result, markets have gradually lowered expectations for Fed rate cuts.

A Reuters poll revealed that economists expect the Fed to lower borrowing costs in December. However, market participants have lowered bets to slightly below 60%. Meanwhile, the outlook for 2025 has also shifted, with experts forecasting fewer rate cuts.

Traders will now watch economic reports to gauge whether the Fed will cut in December. At the same time, policymaker remarks might give more insight into future policy moves.

EUR/USD key events today

• US unemployment claims

EUR/USD technical forecast: Downtrend resumes after brief pause

On the technical side, the EUR/USD price has dropped back below the 30-SMA after recently pausing its decline. The downtrend halted near the 1.0501 key level before bulls took charge and broke above the SMA. However, despite two attempts, they failed to go beyond the 1.0600 key level.

As a result, bears resurfaced and broke below the SMA. The price has now retested the SMA as resistance and is bouncing lower to challenge the 1.0501 support level. A break below this support will signal a continuation of the previous downtrend.

https://www.forexcrunch.com/blog/2024/11/21/eur-usd-forecast-geopolitical-trade-tensions-weaken-euro/