The eurozone's economic outlook is increasingly bleak as the euro has fallen over 3% against the US dollar, dropping below the 1.08 mark. This decline comes in the wake of the International Monetary Fund (IMF) downgrading its growth forecast for the eurozone, predicting only a 1.2% expansion for the next year. Coupled with below-target inflation at 1.8% in September, the European Central Bank (ECB) has implemented its third rate cut, further complicating the economic landscape for the euro.
Recent data released on October 3, 2024, revealed that the Services PMIs for France and Italy declined, while Spain's PMI rose to 57 points. Germany's PMI fell to 50.6, and the overall eurozone PMI decreased to 51.4, indicating a weakening economy that may prompt the ECB to consider additional rate cuts. France's fiscal deficit is also growing, leading to plans for significant budget cuts, including the elimination of 100,000 civil service jobs, which adds to the uncertainty in the region. [68d9371f]
As the upcoming US presidential election on November 5 approaches, analysts suggest that a potential Trump victory could further strengthen the US dollar. Trump has proposed tariffs on Europe, which raises recession risks for the eurozone. Major financial institutions like Deutsche Bank, JPMorgan, and ING have warned that the euro could potentially fall to parity with the dollar. This scenario is compounded by surging global bond yields, particularly US Treasury yields, which are putting additional pressure on the euro. [7e879f62]
Technical analysis indicates a bearish trend for EUR/USD, with resistance at 1.0870 and support at 1.0835. Liquidity below the August low of 1.0777 is a critical level to monitor. Meanwhile, the economic calendar remains relatively quiet until the global flash PMIs are released on October 24, but any signs of weakness in the US economy could lead the Federal Reserve to accelerate rate cuts, further influencing the dollar's strength. This mixed economic backdrop highlights the interconnectedness of global markets and the challenges faced by both the ECB and the Fed in navigating their respective monetary policies. [9aa8fcdb] [e353b036]