EUR/USD Price Analysis – Dec 09, 2024
Daily Price Outlook
During the European trading session, the EUR/USD pair continued its bullish momentum, remained well supported around 1.0585, reaching an intra-day high of 1.0586.
Investors are now closely watching the European Central Bank's (ECB) policy decision this Thursday, with most expecting a 25 basis point (bps) cut to the Deposit Facility Rate, bringing it down to 3%.
Many ECB officials have expressed concerns about inflation potentially falling short of the target due to a sluggish economic outlook. On the other side, the US Dollar faced pressure as market expectations rise for a rate cut by the Federal Reserve in its upcoming meeting on December 18.
Eurozone Uncertainty and ECB Rate Cut Expectations Weigh on EUR/USD Outlook
On the EUR front, markets are certain that the European Central Bank (ECB) will cut its Deposit Facility Rate by 25 basis points (bps) to 3%.
This is because many ECB officials are concerned that inflation may fall below the bank's target due to a weak economic outlook.
The ECB has already lowered the deposit rate by 75 bps this year, and Thursday’s expected rate cut would mark the third consecutive reduction.
Market participants are also worried about the Eurozone’s economic performance, especially with ongoing political uncertainty in Germany and France, the two largest economies in the region.
The situation is further complicated by concerns about the potential impact on exports, particularly with the change in leadership under US President Donald Trump. These factors are contributing to fears of a slowdown in the Eurozone economy.
Moreover, the economic outlook in France has become even more uncertain after the government was recently overthrown. Last week, Michel Barnier became the shortest-serving French prime minister after losing a no-confidence vote from both the Far Right and Left-Wing parties due to his fiscal plans.
In response, French President Emmanuel Macron announced he would find a successor for Barnier “in the coming days,” adding more instability to the country’s political landscape.
Therefore, the political and economic uncertainty in France and the Eurozone, combined with expectations of an ECB rate cut, is likely to limit the EUR/USD pair's upside.
Fed Rate Cut Expectations Weigh on USD as Investors Await US CPI Data
On the US front, the US dollar faces pressure from strong expectations that the Federal Reserve (Fed) will cut interest rates in its December 18 meeting.
The US Dollar Index (DXY), which measures the USD against six major currencies, gave up earlier gains and is struggling to hold the key 106.00 support level.
However, the CME FedWatch tool shows an 87% probability of a 25 basis point (bps) rate cut to 4.25%-4.50%, up from 62% a week ago, reflecting growing confidence in a Fed policy shift.
In the meantime, the dovish bets on the Fed increased after the November Nonfarm Payrolls (NFP) report revealed higher-than-expected job growth, adding to signs of economic resilience.
Chicago Fed President Austan Goolsbee indicated that the Fed could aim for a neutral rate of around 3% by the end of next year, aligning with projections made during the September meeting.
Looking ahead, investors are watching for the US Consumer Price Index (CPI) data for November, set to release on Wednesday. Economists expect headline inflation to rise slightly to 2.7% annually, with core inflation steady at 3.3%, which could influence the Fed’s next steps.
EUR/USD – Technical Analysis
EUR/USD is trading at $1.05475, down 0.18%, as bearish momentum tests the pair's resilience above the pivot point of $1.05327. The 50-day EMA at $1.05626 slightly hovers above the price, reflecting a short-term bearish tilt while maintaining a narrow trading range.
Immediate resistance is at $1.05973, with further barriers at $1.06321 and $1.06603, suggesting limited upward movement unless bullish momentum picks up.
On the downside, immediate support is located at $1.05071, followed by stronger levels at $1.04720 and $1.04347, which could attract renewed selling pressure if the pair breaches the $1.05327 pivot.
The RSI at 41 leans toward bearish territory, signaling the potential for further declines before oversold conditions are met.
A break above $1.05973 would reinforce bullish sentiment, targeting $1.06321. Conversely, if the pair dips below $1.05327, it could extend losses toward $1.04720.
Traders should remain cautious, with key macroeconomic data and central bank commentary likely to influence near-term volatility.
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