On Friday (January 17th), the euro/dollar currency pair fluctuated narrowly around 1.0300, and market participants are closely monitoring the upcoming inauguration ceremony of US President Trump and the potential economic policy changes it may bring. After returning to the White House, Trump is expected to introduce a series of policies, including increasing taxes and tariffs, which may have far-reaching impacts on the global trade environment and the US economy.

While the eurozone is facing economic challenges and the European Central Bank (ECB) is discussing future policy actions, the euro is also under pressure from both internal and external sources. As Trump is about to take office again, the cautious sentiment of the market is reflected in the current price trend, and the euro/dollar continues to fluctuate and consolidate within Thursday's trading range.

Strong US dollar, market expects policy shift

The US Dollar Index (DXY), which measures the exchange rate of the US dollar against a basket of major currencies, has recently performed strongly and stabilized above the key support level of 109.00. Despite market expectations that the Federal Reserve may cut interest rates this year, the US dollar remains strong, mainly influenced by investors' expectations of Trump's economic policies. Traders have started pricing for at least one Fed rate cut, and the core consumer price index (CPI) fell to its lowest level in four years in December, further fueling expectations of a rate cut.

However, the cautious optimism in the market is affected by concerns about the escalating global trade tensions, and Trump's tax reform and protectionist trade policies may have an impact on market sentiment and economic stability. At a Senate hearing this week, Scott Besant, Trump's nominee for Treasury Secretary, emphasized the need to end the current tax system as soon as possible, otherwise the United States will face a tax burden of up to $4 trillion on the middle class. His speech highlighted the core of Trump's policy, which is to promote economic growth in the United States by raising tariffs and reducing taxes, while addressing unfair trade issues.

The sustained strength of the US dollar reflects the high attention of the market to the adjustment of US economic policies, and also indicates that the uncertainty of the global economy is still intensifying.

The dovish stance of the European Central Bank intensifies pressure on the euro

Meanwhile, due to the dovish stance of the European Central Bank, the euro is facing sustained downward pressure. The European Central Bank stated in the minutes of its December meeting that the pace of policy easing will continue, and the ECB does not rule out even greater interest rate cuts. Although the central bank ultimately decided to cut interest rates by 25 basis points, the discussion on whether to adopt a 50 basis point rate cut reflects the European Central Bank's high concern about the downside risks to economic growth.

The uncertainty of the economic health of the eurozone, coupled with the continued dovish stance of the European Central Bank, further exacerbates the market's pessimistic sentiment towards the prospects of the euro. Analysts generally believe that the European Central Bank will further cut interest rates in its upcoming policy meeting, especially against the backdrop of persistently low inflation levels in the eurozone, far from its target of 2%.

In addition, as the Trump administration is about to take office, market expectations for the euro/dollar to fall to parity have intensified. Trump may introduce higher import tariffs, which is undoubtedly a negative factor for the export-oriented EU economy. If Trump's protectionist policies are implemented, it will pose even more severe challenges to the EU's export sector, thereby intensifying downward pressure on the euro.

Technical analysis: EUR/USD maintains bearish trend

From a technical perspective, the euro/dollar is still in a bearish trend. At present, the euro/dollar is trading at 1.0295, down 0.06% from the previous trading day, and continues to consolidate around the key psychological level of 1.0300. Although the euro/dollar rebounded to over a two-year low of 1.0175 on Monday, the overall bearish trend has not changed, with short-term to long-term index smooth moving averages (EMAs) showing a downward trend, indicating sustained bearish momentum.

The Relative Strength Index (RSI) has shown a divergence phenomenon, forming a low point around 35.00, but prices are still hitting lower lows. This divergence indicates that although the momentum is weak, there may be some consolidation or slight rebound in the short term. However, if a rebound occurs, it will also encounter strong resistance at 1.0437 (the high point on January 6th).

Looking ahead, the low of 1.0175 remains a key support level for EUR/USD, and if this support is effectively breached, it may further exacerbate bearish sentiment. If the euro/dollar breaks through 1.0437, it may trigger a certain rebound, but in the current fundamental environment, the possibility of a breakthrough is small unless there are significant changes in the eurozone or US economy.

Conclusion: Market focus shifts towards political and economic uncertainty

The trend of EUR/USD is still influenced by the interweaving of political and economic uncertainties. Trump is about to take office and introduce economic policies, and the market is highly concerned about how these policies will affect the global trade landscape and the future direction of the US economy. Meanwhile, the dovish policy stance of the European Central Bank and the ongoing economic difficulties in the eurozone have also put heavy pressure on the euro.

In the short term, the euro/dollar may continue to face downward pressure, especially if key support levels are not held. But if the European Central Bank or the US government introduces unexpected policy changes, it may trigger market volatility and bring opportunities for traders. Therefore, the future of the euro/dollar is still full of variables, and investors need to keep an eye on it.