The euro tumbled below the critical 1.02 level today, as markets dramatically reassessed monetary policy expectations between the Federal Reserve and European Central Bank. The drop intensified after Friday's strong US jobs report forced traders to slash Fed rate cut bets while the ECB remains on track for multiple cuts in 2025.
Key Highlights:
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Euro trading at 1.017, lowest level since November 2023
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Goldman Sachs forecasts euro to fall to 0.97 in six months
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Markets now pricing less than 30bps of Fed cuts in 2025
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ECB expected to cut rates three times this year
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Dollar index reaches two-year high amid Treasury yield surge
US Economic Strength Persists
Friday's blowout US employment data, showing 256,000 new jobs in December, has fundamentally shifted market expectations. Bank of America now sees no Fed rate cuts in 2025 and warns of potential hikes if inflation remains sticky. The resilient US economy stands in stark contrast to Europe's weakness, with manufacturing PMI falling to 45.1 in December.
Wall Street's Dollar Bullishness
Goldman Sachs has upgraded its dollar forecasts for the second time in two months, citing robust US growth and Trump's planned tariffs that could fan inflation. "We expect the dollar to rally by about 5% over the coming year," noted strategist Kamakshya Trivedi, adding that risks remain tilted toward more dollar strength.
Market Impact
The diverging monetary policy outlook has sent US 10-year Treasury yields to 4.80%, while the dollar index surges to two-year highs. Europe faces additional headwinds from potential Trump tariffs, given its significant export exposure to the US market across automobiles, chemicals, and luxury goods sectors.
Implied Rate Cuts for the US. Source: Bloomberg
The focus now shifts to Wednesday's US CPI data for further clues on the Fed's policy path, while markets watch if the euro can maintain support at parity - a level last breached during the 2022 energy crisis. With the ECB appearing committed to easing while the Fed holds firm, currency strategists increasingly warn of further euro weakness ahead.
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Implied Rate Cuts for the Eurozone. Source: Bloomberg
EURUSD (D1 Interval)
EURUSD has dropped below the 1.02 level, marking its lowest point since November 2022. The next significant support level is at 1.00845, which corresponds to the late October 2022 high. The RSI is nearing the oversold zone, which has historically signaled rebound potential; however, it is worth noting that in late 2022, the RSI dropped as low as 22 before a recovery occurred. Meanwhile, the MACD continues to diverge lower, reinforcing the bearish momentum. Source: xStation
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