01.11.202413:38 Forex Analysis & Reviews: EUR/USD: The Euro's Moment in the Spotlight

This week, the euro is experiencing its "moment in the spotlight." Virtually all macroeconomic reports published this week in Europe have favored the single currency. Key indicators, including GDP growth, labor market figures, and inflation, have all come in stronger than expected, bringing the pair close to the 1.0900 level, with a recent high at 1.0889.

For example, the eurozone's unemployment rate reached a record low of 6.3% in September. Eurozone GDP grew by 0.4% quarter-on-quarter in Q3, exceeding the 0.2% growth expected by most experts, marking the strongest growth rate since early last year. On an annual basis, GDP grew by 0.9% (forecast: 0.8%), the highest growth rate since Q1 2023.

Inflation has also supported the euro. For instance, Germany's headline CPI accelerated to 2.0% y/y, with the harmonized index reaching 2.4%. Eurozone-wide data followed a similar path, with the overall CPI rising to 2.0% (forecast: 1.9%) and the core CPI remaining steady at 2.7% (forecast: 2.6%). Inflation in service prices—a critical component closely monitored by the ECB—remained high at 3.9%.

With such a strong set of macroeconomic reports, EUR/USD was poised to test the 1.0900 level and potentially consolidate above it. However, traders exercised caution, and as the price neared 1.0900, many took profits, curbing the upward momentum. Market participants are now awaiting the U.S. October Nonfarm Payrolls release, expected at the start of the American session on Friday.

Returning to the European data, what do these numbers imply? Mainly, they suggest that the ECB is unlikely to pursue a 50-basis-point rate cut in December. Last week, ECB President Christine Lagarde indicated that such a move would depend on incoming data. Just a day before the inflation report, she commented in an interview with Le Monde that caution is warranted when considering rate cuts.

Now, it's almost certain that the ECB will avoid aggressive rate cuts—at least at the December meeting.

So why has EUR/USD reacted so cautiously to this strong macroeconomic data? In my view, there are several reasons.

First, there's a strong counterbalance: the U.S. dollar. The U.S. Dollar Index remains around 104, supported by a strong ADP report (often a precursor to strong Nonfarm Payrolls), solid Q3 U.S. GDP growth (2.8%), and consistently positive weekly U.S. labor market data. Initial jobless claims have decreased for the third consecutive week, reaching 216,000, the lowest since late May this year.

Second, there's political risk. The U.S. presidential election is just days away, and there is still no clear front-runner. The race is close, with any leads by Harris or Trump in individual states within statistical uncertainty. While Harris's policies are fairly predictable, a potential "second coming of Trump" is a source of concern for many market participants. Trump recently referred to the EU as "mini-China" in terms of trade, prompting Brussels to prepare for a potential trade war with the U.S., mindful of Trump's 2018 tariffs on EU steel and aluminum. Trump has also revived the threat of a 25% tariff on European car exports.

The overall tension in the forex market does not support EUR/USD growth. Thus, despite the strong macroeconomic reports from Europe this week, the EUR/USD pair is gradually slipping downward. If the October Nonfarm Payrolls also favor the dollar, the price could retreat to the lower end of the 1.0800 range, testing the support level at 1.0800 (the lower Bollinger Bands line on the four-hour chart). However, opening trading positions before the release of the critical U.S. labor market data is risky. Should the report disappoint (falling into the "red"), buyers may once again push the pair towards the 1.0900 level. Therefore, all eyes are on the Nonfarm Payrolls report.