Looking at the monthly chart, EUR/USD has formed two bearish candles. In October, the pair dropped by 250 pips, and in just two weeks of November, it had already fallen by almost 400 pips (opening price: 1.0883, current low: 1.0494). Notably, after the U.S. presidential election results, EUR/USD buyers managed a brief, nearly 100-pip correction, but last week saw the pair decline almost uninterruptedly. By Friday, the price paused and slightly corrected due to the "Friday effect," as market participants refrained from breaching the 1.0400 level ahead of the weekend. Consequently, the Friday candle on the D1 chart turned bullish. However, bearish sentiment continues to dominate, pointing toward the 1.0450 support level (the Kijun-sen line on the MN timeframe).
The driving force behind EUR/USD remains Donald Trump and his anticipated "Trumpnomics." This is the cornerstone of market developments, with all other factors deriving from it.
The week before last, the market reacted to Trump's election victory. Last week, as emotions subsided, the focus shifted to Trump's (who will take office on January 20 next year) first personnel decisions, which signaled impending tensions with China and other trade partners.
The so-called "Florida Hawks" will occupy key positions in the White House: Marco Rubio as Secretary of State (comparable to the Minister of Foreign Affairs) and Mike Waltz as National Security Advisor (the most influential position in the hierarchy of American power). Both hold aggressive stances toward China: Marco Rubio supported the Hong Kong protests four years ago and described China as "the most formidable and dangerous adversary the U.S. has ever faced."
The other "Florida Hawk" (they both represent the state of Florida), Mike Waltz, views the U.S. as still in a Cold War with China. He championed legislation reducing the U.S. dependence on China for critical minerals and called for a full boycott of the 2022 Beijing Winter Olympics.
These appointments indicate that Trump plans to adopt an aggressive stance toward China, with Rubio and Waltz likely spearheading this policy.
China, in turn, has signaled readiness for confrontation. According to the Financial Times, Chinese authorities have prepared countermeasures, including sanctions, blacklisting foreign companies, and restricting U.S. access to critical supply chains.
This escalation puts Washington and Beijing on the brink of a trade war, with potential "battle" lines drawn for early next year.
The trade war's most immediate consequence will likely accelerate U.S. inflation. As tensions mount, market speculation about the Federal Reserve pausing rate cuts in 2024 has intensified, further fueled by Powell's comments last week.
Such assumptions began to sound more confident after the speech of the Fed head, Jerome Powell, who said on Thursday that the Fed should not rush to lower the interest rate. This hawkish signal took market participants by surprise since just last week, at a press conference following the November meeting, he stated without any remarks that the central bank would continue to soften monetary policy.
Recent CPI and PPI data supported Powell's stance, reflecting the acceleration of inflation in the US. The headline CPI rose to 2.6% YoY in October, marking the first acceleration since March after a six-month consecutive decline. Meanwhile, the core CPI remained steady at 3.3% YoY.
The PPI index complemented the CPI – all report components were in the green zone. For example, the general producer price index rose in October to 2.4% year-on-year after falling to 1.9% in September (with a forecast of 2.3%). The core PPI also exceeded experts' expectations. With a forecast of growth of 3.0%, it increased to 3.1%. This indicator has been demonstrating a consistent upward trend for the third month in a row.
Following such a busy week, the market has revised its expectations for the Fed's next moves. The probability of the Fed maintaining the current rate in December rose to 40%, up from just 14–16% earlier in the week (CME FedWatch Tool).
The fundamental landscape strongly favors the continuation of the bearish trend in EUR/USD. The euro will obediently follow the greenback, which feels quite confident against the backdrop of Trump's personnel decisions, accelerating inflation in the US and strengthening hawkish sentiments in the market. The nearest target of the downward movement is 1.0500 (the lower line of the Bollinger Bands indicator on the four-hour chart), and the main target is 1.0450 (the Kijun-sen line on the MN timeframe).
