EUR/USD Price Analysis – Dec 02, 2024
Daily Price Outlook
The EUR/USD pair is facing some selling pressure, dropping to around 1.0514 and hitting an intra-day low of 1.0496, as the US dollar strengthens during the early hours of European trading on Monday.
Investors will be watching closely for European Central Bank President Christine Lagarde's speech and the release of the US ISM Manufacturing Purchasing Managers' Index (PMI) later today.
Although the losses in the EUR/USD pair could be short-lived, the rise in inflation in the Eurozone above the European Central Bank's target is putting increasing pressure on the ECB to tighten its monetary policy. This could strengthen the Euro against the US Dollar, potentially pushing the EUR/USD pair higher as markets react to the inflation data.
Impact of ECB's Rate Cut Expectations and Weak Growth Outlook on the EUR/USD Pair
On the EUR front, inflation in the Eurozone, measured by the Harmonized Index of Consumer Prices (HICP), rose to 2.3% year-on-year (YoY) in November, up from 2.0% in October.
This increase met market expectations but went beyond the European Central Bank's (ECB) target of 2.0%.
Meanwhile, the Core HICP, which excludes volatile items like food and energy, climbed by 2.8% YoY in November, slightly higher than the previous reading of 2.7%, also in line with expectations.
Despite this rise in inflation, the market has already priced in a 25 basis point (bps) rate cut from the ECB in December, which would mark the bank's fourth rate reduction this year.
However, expectations for a larger 50 bps cut have been fading. This change in outlook is due to some improvement in the Eurozone's growth forecast, although it remains weak.
As a result, the market's reduced expectations for aggressive rate cuts are limiting any significant movement in the Euro.
The ECB's expected rate cut is still putting pressure on the Euro, as it signals the bank's ongoing efforts to support the struggling economy.
As a result, the Euro has faced some selling pressure, which could continue in the near term as market participants adjust to the ECB's policies and the overall economic outlook.
Therefore, the ECB's expected rate cut and weaker growth outlook are putting pressure on the Euro, likely leading to further selling of EUR.
This could result in continued downward movement for the EUR/USD pair as investors adjust to the ECB's policies.
Impact of the Fed's Cautious Approach on the US Dollar and EUR/USD Pair
On the US front, the Federal Reserve (Fed) is taking a cautious approach, which is likely to support the strength of the US Dollar.
Fed Chair Jerome Powell recently stated that the economy isn’t showing signs that would require a quick decision to lower interest rates.
He also mentioned that the current economic strength gives the Fed the flexibility to make decisions carefully.
As a result, the Fed is not rushing into rate cuts, which helps maintain investor confidence in the US Dollar. Powell's comments suggest the central bank will continue to closely monitor economic data before making any drastic changes.
This cautious stance provides stability to the US Dollar, as investors are less concerned about major rate cuts in the near future.
Market expectations indicate a nearly 65.4% chance that the Fed will reduce rates by a quarter point in December, according to the CME FedWatch Tool.
However, with the economy showing resilience, the Fed’s more measured approach means the US Dollar could remain supported, limiting any sharp decline. As a result, the US Dollar’s strength may continue to weigh on the EUR/USD pair.
EUR/USD – Technical Analysis
The EUR/USD pair is trading at $1.05217, down 0.50%, reflecting sustained bearish momentum. The currency pair remains below its critical pivot point at $1.05657, signaling continued downside pressure.
Immediate resistance is seen at $1.05973, with further hurdles at $1.06321. These levels are pivotal, as a breakout above $1.05973 could signal a reversal of the bearish trend. However, the 50-day EMA at $1.05339 reinforces near-term resistance, limiting upward potential.
On the downside, immediate support rests at $1.04983, followed by deeper levels at $1.04690 and $1.04332. The RSI at 40 indicates bearish sentiment, though it is not yet in oversold territory, leaving room for further declines.
A sustained break below $1.04983 could accelerate selling pressure, targeting the $1.04690 support level, while failure to breach resistance suggests continued consolidation within the current range.
The broader technical outlook remains bearish as long as EUR/USD trades below $1.05657. Traders should monitor key support levels to gauge the extent of downside risk.
A decisive move above the pivot point could shift sentiment and attract bullish interest, but caution is warranted given the current downward trend.
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