EUR/USD Price Analysis – Dec 20, 2024
Daily Price Outlook
During the European trading session, the EUR/USD currency pair managed to halt its downward trend and gained some bullish momentum, reaching as high as 1.0398.
This recovery can be mainly attributed to two factors. First, the US Dollar (USD) had given up some of its earlier gains, though it remains strong due to factors like the Federal Reserve's hawkish outlook and the ongoing strength of the US economy.
On the other hand, the Euro (EUR) found support from a key development in Germany, where lawmakers approved tax reforms that will cut annual tax revenue by 14 billion euros.
This decision is expected to leave more money in the hands of German households, encouraging higher consumer spending.
As a result, this boost in demand is likely to help stimulate economic growth in the Eurozone. Moreover, increased spending could help keep inflation in check, reducing the risk of it falling below the European Central Bank’s (ECB) target of 2%.
Despite the temporary bounce, the EUR/USD pair remains cautious, still trading near its yearly lows around 1.0350, reflecting ongoing concerns about the strength of the US Dollar and the broader economic outlook. The pair’s direction remains uncertain as investors watch closely for further developments.
EUR/USD Temporary Support from German Tax Reforms and ECB's Cautious Rate Cut Stance
On the EUR front, EUR/USD gained some temporary support near its yearly low as the Euro strengthened after German lawmakers approved tax reforms. These reforms will reduce tax revenue by 14 billion euros, giving households more disposable income.
This extra money is expected to boost consumer demand and help stimulate economic growth in the Eurozone. Higher spending could also reduce the risk of inflation falling below the European Central Bank’s (ECB) 2% target, especially since Germany is the largest economy in the region.
Meanwhile, ECB policymaker Christodoulos Patsalides, who is also the Governor of the Central Bank of Cyprus, has reduced expectations for larger rate cuts to boost growth. He prefers smaller, gradual rate adjustments instead of big cuts.
Patsalides believes that bigger cuts would only be necessary if inflation remains well below the ECB’s target for a long period.
Right now, traders expect four interest rate cuts from the ECB by June 2025. So far, the ECB has already lowered its Deposit Facility rate four times by 100 basis points to 3% this year, which has helped support the Euro in the short term.
Therefore, the approval of tax reforms in Germany and the ECB's cautious stance on rate cuts provide temporary support for the Euro, helping EUR/USD recover slightly from yearly lows. However, ongoing USD strength and market expectations for ECB cuts limit significant gains.
EUR/USD – Technical Analysis
The EUR/USD pair is trading at $1.03698, marking a modest gain of 0.12% on the day, as it consolidates near the $1.03435 pivot point on the 4-hour chart. Immediate resistance is situated at $1.04220, with the next barriers at $1.04550 and $1.04800.
A break above these levels could solidify bullish momentum, setting the stage for further gains. Conversely, support lies at $1.03151, with deeper levels at $1.02840 and $1.02557 providing a safety net against extended losses.
Technical indicators are mixed, with the RSI at 42 indicating slight bearish bias, yet not fully oversold. Meanwhile, the 50 EMA at $1.04073 suggests downward pressure in the short term, as the price remains below this key moving average.
A decisive close above the pivot point at $1.03920 and the 50 EMA would shift sentiment to bullish, targeting the immediate resistance levels.
A cautious trading strategy is advised in this consolidation phase. Traders might consider buying near $1.03435, targeting $1.04038, with a stop loss at $1.03157.
A successful break above $1.04220 could pave the way for additional upside toward $1.04550, while failure to hold $1.03151 could signal bearish continuation.
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