Forex analyst Gary Howes believes that as the EUR/USD recovers from oversold and the temporary pause in the "Trump trading" frenzy, the exchange rate seems to be firmly established above 1.05.

EUR/USD rebound: oversold easing and fundamental support analysis

Last week, the euro fell to a technical oversold range against the US dollar, and is currently showing some initial rebound potential. RSI has been recovering since falling below 30 last week.

A RSI drop below 30 is an important signal indicating that the underlying asset has entered an oversold state, usually indicating an upcoming rebound or consolidation period.

With the easing of oversold conditions, Howes believes that there may be further signs of stabilization of the euro against the US dollar this week.

We believe that the trend of the euro falling below 1.05 against the US dollar will be short-lived, while the euro still exhibits significant stability against most European currencies, "said UBS's Chief Investment Office's foreign exchange weekly report

Fundamental factors may also drive the euro to gain some support in the short term. This trend is still dominated by a significant adjustment in market expectations after Trump's election as president.

Last week, Trump announced some important appointments, which the market interpreted as fully fulfilling his campaign promises, including implementing tariff policies, reducing taxes, and increasing US energy production. The risk of these policies is that inflation in the United States may remain at a higher level for a longer period of time, while also increasing market expectations that the US economy will perform better than other major economies in 2025.

All these factors indicate a trend of strengthening the US dollar.

Trump deal nearing end: Strong dollar may face downward pressure

Corpay has released consensus forecasts for investment banks for the end of 2024 and 2025, including median, average, and high/low point forecasts for over 30 banks.

The market is eager to digest this information and seems to be replicating the market pattern after Trump was first elected president in 2016. However, analysts believe that the initial phase of the 'Trump deal' may be nearing its end.

If the price trend of 2016 becomes the dominant template in the foreign exchange market from now on, we can conclude that many positive factors related to Trump have already been reflected in the price of the US dollar, "said Valentin Marinov, head of G10 foreign exchange strategy at Credit Agricole France

Howes believes that the next step is to pay attention to Trump's specific statements on tariff policies, which may become the next catalyst for the global foreign exchange market. Prior to this, the market may enter a wait-and-see state, which could lead to a recent pullback in the strong US dollar.

UBS said: "There is a limit to the strength of the dollar. The Federal Reserve said at the last meeting that monetary policy is still in a tight range, and further interest rate cuts are needed in the future to ensure a soft landing of the economy. In our view, the market's expectation of the Federal Reserve's interest rate cut has been excessively adjusted, so we believe that the future U.S. bond yields are more likely to decline."

Potential risks and concerns of the Euro

There are no major data releases from the United States this week, so the market will be mainly driven by news related to Trump. Howes said that this is a risk for the euro against the US dollar, especially considering that Trump seems to be interested in starting his agenda on his first day in office.

The recent weakness of the euro is also affected by PMI, and the country will hold elections in February next year. Meanwhile, the data released by the eurozone has performed poorly, and the market generally expects the European Central Bank to cut interest rates by 50 basis points in December.

However, the Chief Investment Office of UBS believes that in recent months, many negative news has been reflected in the price of the euro, which has helped increase the possibility of the European Central Bank cutting interest rates.

The highlight of the Eurozone this week will be the release of November PMI data (released at 17:00 Beijing time on November 22), which will provide more clues about recent economic events. If the data performs better than expected, it will help the euro to successfully build a bottom against the US dollar; But if the data is lower than expected, the market may be prepared for the European Central Bank to cut interest rates by 50 basis points next month, and the euro/dollar may close down again on the weekly line.

EUR/USD daily chart