EUR/USD Price Analysis – Dec 16, 2024
Daily Price Outlook
During the European trading session, the EUR/USD currency pair struggled to maintain its gains, slipping back below the key 1.0500 level. The pair fell to an intraday low of 1.0484, reflecting ongoing pressure.
The main factor behind this decline was the dovish stance of the European Central Bank (ECB). ECB President Christine Lagarde, along with several other policymakers, expressed support for further rate cuts and a gradual move towards a neutral rate around 2%.
Meanwhile, the US Dollar staged a rebound, pushing the US Dollar Index (DXY) close to the important 107.00 level.
This renewed strength in the Greenback, combined with uncertainty surrounding the Federal Reserve’s upcoming interest rate decision on Wednesday, kept the USD volatile, contributing to the EUR/USD’s downward pressure.
ECB Signals Further Rate Cuts and Mixed Economic Data Weigh on EUR/USD
On the EUR front, the European Central Bank (ECB) is signaling further policy easing. ECB President Christine Lagarde mentioned that they may cut interest rates more if the data shows that inflation is slowing down.
She also noted that inflation in services has dropped sharply. Additionally, ECB Vice President Luis de Guindos agreed that the bank would continue with its current approach for the time being, suggesting more rate cuts are likely.
Recently, the ECB reduced its Deposit Facility rate by 25 basis points to 3%, part of a total of 100 basis points in rate cuts this year.
With inflation in the Eurozone under control and concerns about economic risks, markets expect the ECB to cut rates by another 100 basis points by June 2025.
On the economic front, the latest data from the Eurozone showed some positive signs. The December Purchasing Managers' Index (PMI) was better than expected, rising to 49.5 from 48.3, suggesting that business activity in the region is slowing down less than before.
The Services PMI improved, expanding to 51.4, which was better than analysts predicted. However, the Manufacturing PMI remained in contraction at 45.2.
Meanwhile, the German and French PMIs also showed improvement, mainly due to better performance in the services sector, although they remained below the 50.0 threshold, signaling ongoing contraction.
In politics, French President Macron appointed Francois Bayrou as the new prime minister, replacing Michel Barnier, who lost a no-confidence vote.
Therefore, the ECB's signals for further rate cuts and the mixed economic data, including a slower pace of contraction in business activity, may put downward pressure on the EUR. This could lead to continued weakness in the EUR/USD pair, especially against a strong USD.
US Dollar Strength and Fed's Rate Cut Expectations Pressure EUR/USD
On the US front, the US Dollar (USD) has regained some strength, pushing the US Dollar Index (DXY) closer to the key resistance level of 107.00. This rebound has caused the EUR/USD pair to give up its earlier gains.
The USD is expected to stay volatile as investors await the Federal Reserve’s (Fed) interest rate decision on Wednesday. The Fed is widely expected to lower its key borrowing rates by 25 basis points, bringing them to 4.25%-4.50%.
Investors will closely examine the Fed’s Summary of Economic Projections, also known as the “dot plot,” which outlines where policymakers expect interest rates to go in the medium and long term.
However, the recent Bloomberg survey revealed that most economists expect the Fed’s outlook for 2025 to be less dovish, meaning they predict fewer interest rate cuts.
Economists anticipate the Fed will reduce rates three times next year, assuming progress in controlling inflation slows. However, there are growing concerns about inflation risks, especially with the potential impact of President-elect Donald Trump's policies, such as new tariffs and tax cuts.
Today, investors will also pay attention to the S&P Global PMI report for December, which will provide further insights into the US economy’s performance.
Therefore, the US Dollar's strength and expectations of a 25 basis point rate cut by the Fed could pressure the EUR/USD pair, especially if the Fed's outlook signals fewer rate cuts in 2025. The pair may face further downward pressure as a result.
EUR/USD – Technical Analysis
The EUR/USD pair is trading at $1.05188, up 0.19%, as the pair extends its recovery above the pivot point of $1.05032. The immediate resistance level lies at $1.05480, a critical threshold for short-term buyers.
A break above this level could see the euro challenging higher resistance at $1.05914 and potentially $1.06294, driven by renewed bullish momentum and improving sentiment.
On the downside, immediate support is at $1.04525, followed by stronger safety nets at $1.04204 and $1.03858. The pair remains supported near the 50 EMA at $1.05031, highlighting stability around the pivot zone.
Traders should watch this level closely, as a sustained position above it suggests further upside potential, while a breach below could shift focus to the support zones.
The Relative Strength Index (RSI) stands at 54, reflecting neutral momentum and signaling room for further gains if buyers take control.
A cautious bullish tone persists as long as the EUR/USD pair holds above the pivot point. The buy limit entry near $1.05037, targeting $1.05491, aligns well with the current technical structure, with a stop loss placed at $1.04699 for risk management.
In conclusion, while market conditions remain delicate, the EUR/USD appears poised for upward movement above $1.05032, with near-term targets pointing to $1.05480 and beyond.
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