EUR/USD Gains 1.55% This Week Amid Weak US Data

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EUR/USD Gains 1.55% This Week Amid Weak US Data

The EUR/USD pair strengthened by approximately 1.55% last week, driven by better-than-expected data from the eurozone and disappointing economic reports from the US. Despite this recovery, the long-term outlook remains uncertain, especially as the economic divergence between the two regions continues to weigh on market sentiment.

US Data Falls Short of Expectations

A series of weaker-than-expected US economic indicators pressured the dollar this week:

- **Chicago Fed National Activity Index (Oct):** Fell to -0.40, below the expected -0.2.
- **Dallas Fed Manufacturing Index (Nov):** Came in at -2.7, worse than the forecast of -2.4.
- **New Home Sales (Oct):** Declined to 0.61M, significantly missing expectations of 0.73M.
- **Richmond Fed Manufacturing Index (Nov):** Plunged to -14, below the forecast of -10.
- **Durable Goods Orders (Oct):** Increased by just 0.2%, underperforming the 0.5% forecast.
- **Initial Jobless Claims (Nov 23):** Reported at 213K, slightly better than expected (216K), but still pointing to a resilient labor market.
- **Chicago PMI (Nov):** Dropped to 40.2, well below the anticipated 44, highlighting weakness in manufacturing.

These data points fueled concerns about slower economic activity in the US, prompting a sell-off in the dollar and supporting EUR/USD gains.

Eurozone Data Provides Modest Support

The eurozone provided some relief for EUR/USD with slightly better-than-expected results:

- **Economic Sentiment (Nov):** Rose to 95.8, exceeding the forecast of 95.1, signaling marginal improvement in business and consumer confidence.

While the euro benefitted from these figures, the broader macroeconomic picture in the eurozone remains weak.

Comparative Economic Outlook

The US economy continues to outshine the eurozone across several key metrics:

| Metric | US | Eurozone |
|-----------------------|----------------------|---------------------|
| **GDP Growth Rate** | 2.70% | 0.90% |
| **Unemployment Rate** | 4.10% | 6.30% |
| **Inflation Rate** | 2.60% | 2.30% |
| **Interest Rate** | 4.75% | 3.40% |
| **Manufacturing PMI** | 56.00 | 45.20 |
| **Services PMI** | 57.00 | 49.20 |

While the eurozone showed some resilience this week, its lower growth rate, higher unemployment, and weaker PMIs highlight the underlying economic challenges.

Outlook for EUR/USD

Despite this week’s gains, the outlook for EUR/USD remains bearish in the long term. If eurozone economic data continues to underperform, the European Central Bank (ECB) may face pressure to implement faster and deeper rate cuts. Conversely, the US appears to be on a stable path toward a "soft landing," supported by strong labor markets and robust economic growth.

Conclusion

While EUR/USD benefitted from weaker US data this week, the pair's long-term direction depends on the relative strength of economic fundamentals between the eurozone and the US. The euro remains vulnerable, especially if eurozone data disappoints further and the ECB accelerates its monetary easing.

Will EUR/USD sustain its gains, or is a reversal imminent? Share your thoughts in the comments!