European currencies remain on the defensive as the new trading year unfolds, with Euro struggling near its lowest level against Dollar since 2022 and Sterling hovering close to a nine-month low. Dollar, while firm, is holding steady in narrow ranges against Yen and commodity-linked currencies, with traders awaiting fresh signals from today’s ISM Manufacturing PMI.
Europe’s economic outlook has been further clouded by an energy price surge. This week, Russian natural gas flows to the EU via Ukraine ceased after the expiration of a five-year transit agreement, forcing European nations to seek pricier LNG imports elsewhere. This development adds another layer of strain to energy-reliant economies like Germany, France, and the UK, worsening their already fragile terms of trade.
US natural gas futures reflected the energy market’s unease, spiking to 4.474 earlier this week before retreating. Key resistance now stands at the 38.2% retracement of 10.03 to 1.570 at 4.870. Strong resistance is expected to cap further gains for now, setting the stage for medium-term range trading above 3.024 resistance turned support. However, decisive break above 4.870 could signal significant shifts in energy market dynamics, and could prompt panic rally towards 61.8% retracement at 6.798.
Trade tensions and diverging monetary policies are adding further pressure on European currencies. US president-elect Donald Trump has once again stoked fears of a trade war, tweeting today, “Tariffs will pay off our debt and MAKE AMERICA WEALTHY AGAIN!” This statement reinforces expectations of a more aggressive US trade agenda under his administration, which takes office on January 20. European economies, already struggling with stagnant growth, could face additional headwinds if punitive tariffs are imposed on exports to the US.
The monetary policy outlook for 2025 is also weighing on market sentiment. ECB is expected to proceed with steady rate cuts, totaling around 100 bps by the summer. BoE may also reduce rates by 60 basis points this year, with the possibility of deeper cuts of 100bps if economic conditions deteriorate further. In contrast, Fed is likely to adopt a more cautious easing path, with markets pricing in fewer than 50 basis points of cuts for the year. Yesterday’s US jobless claims report, which revealed an eight-month low in initial claims, highlighted the relative resilience of the US labor market. Upcoming ISM data and non-farm payroll data will be critical in solidifying these expectations for Fed’s policy path.
EUR/USD Daily Outlook
Daily Pivots: (S1) 1.0203; (P) 1.0289; (R1) 1.0353; More…
Intraday bias in EUR/USD remains on the downside at this point, as fall from 1.1213 is in progress to 1.0199 fibonacci level. Decisive break there will solidify the case of larger bearish trend reversal. Next target will be 61.8% projection of 1.1213 to 1.0330 from 1.0629 at 1.0083. On the upside, above 1.0343 support turned resistance will turn intraday bias neutral first. But outlook will now stay bearish as long as 1.0629 resistance holds, in case of recovery.
In the bigger picture, current development suggests that rebound from 0.9534 (2022 low) has already completed at 1.1274 after rejection by 55 M EMA. Deeper fall should be seen to 61.8 retracement of 0.9534 to 1.1274 at 1.0199. Sustained trading below there will pave way back to 0.9534 low. This will now remain the favored case as long as 1.0629 resistance holds.
