EUR/USD shows resilience ahead of key PMI data, Fed decision in focus
Press Hub UCapital
Share:
The EUR/USD pair shows modest gains, trading near 1.0515, as market participants await preliminary PMI data for December from both the Eurozone and the US. Diverging economic trends between the two regions are likely to shape the pair's movement. The Eurozone continues to face contraction in both manufacturing and services, fueling expectations of additional rate cuts by the European Central Bank (ECB), while the US maintains its economic resilience, bolstering the US Dollar's strength.
ECB Outlook
The ECB recently reduced its Deposit Facility rate by 25 basis points (bps) to 3%, culminating in a total of 100 bps cuts for 2024. Market forecasts suggest a further 100 bps reduction by June 2025 as Eurozone inflation stabilizes and economic risks intensify. Prominent ECB policymakers have expressed comfort with market projections, supporting a gradual shift toward a neutral rate estimated at 2%.
ECB President Christine Lagarde’s upcoming keynote speech in Lithuania on European economic and political resilience will be closely scrutinized for further clues on monetary policy.
Political Developments in France
Adding to the Euro’s challenges, France faces political turbulence as Francois Bayrou replaces Michel Barnier as prime minister following a failed budget vote. Bayrou faces immediate hurdles, including reconciling political factions and addressing fiscal challenges, which may impact investor sentiment toward the Euro.
US Dollar Dynamics
The US Dollar Index (DXY) edges lower but remains close to the critical 107.00 resistance level. The Federal Reserve’s upcoming policy decision on Wednesday looms large, with expectations of a 25 bps rate cut to 4.25%-4.50%. The Fed’s "dot plot" projections for 2025 will be a focal point, providing insight into the trajectory of US monetary policy.
A Bloomberg survey indicates that economists anticipate a more cautious Fed, expecting three rate cuts in 2025 due to slowing disinflation. However, President-elect Donald Trump's proposed economic policies, including tariffs and tax cuts, could pose upside risks to inflation, complicating the Fed's approach.
Technical Analysis
The EUR/USD pair holds above the 1.0500 psychological level but struggles to breach resistance near 1.0535. It remains below the 20-day Exponential Moving Average (EMA) at 1.0545, signaling a bearish outlook.
The 14-day Relative Strength Index (RSI) hovers near 40.00, and a dip below this threshold could trigger further bearish momentum. Key support lies at the two-year low of 1.0330, while resistance is positioned at the 20-day EMA.
Key Events to Watch
Preliminary Eurozone and US PMI data
ECB President Lagarde's speech on economic resilience
US Federal Reserve policy meeting and dot plot projections
Conclusion
EUR/USD remains sensitive to central bank dynamics and macroeconomic data. While Eurozone economic struggles and dovish ECB expectations weigh on the Euro, resilience in the US economy and an active Fed policy decision create a supportive backdrop for the US Dollar. Near-term movement in the pair will depend on PMI outcomes and guidance from central bank policymakers.
ECB Outlook
The ECB recently reduced its Deposit Facility rate by 25 basis points (bps) to 3%, culminating in a total of 100 bps cuts for 2024. Market forecasts suggest a further 100 bps reduction by June 2025 as Eurozone inflation stabilizes and economic risks intensify. Prominent ECB policymakers have expressed comfort with market projections, supporting a gradual shift toward a neutral rate estimated at 2%.
ECB President Christine Lagarde’s upcoming keynote speech in Lithuania on European economic and political resilience will be closely scrutinized for further clues on monetary policy.
Political Developments in France
Adding to the Euro’s challenges, France faces political turbulence as Francois Bayrou replaces Michel Barnier as prime minister following a failed budget vote. Bayrou faces immediate hurdles, including reconciling political factions and addressing fiscal challenges, which may impact investor sentiment toward the Euro.
US Dollar Dynamics
The US Dollar Index (DXY) edges lower but remains close to the critical 107.00 resistance level. The Federal Reserve’s upcoming policy decision on Wednesday looms large, with expectations of a 25 bps rate cut to 4.25%-4.50%. The Fed’s "dot plot" projections for 2025 will be a focal point, providing insight into the trajectory of US monetary policy.
A Bloomberg survey indicates that economists anticipate a more cautious Fed, expecting three rate cuts in 2025 due to slowing disinflation. However, President-elect Donald Trump's proposed economic policies, including tariffs and tax cuts, could pose upside risks to inflation, complicating the Fed's approach.
Technical Analysis
The EUR/USD pair holds above the 1.0500 psychological level but struggles to breach resistance near 1.0535. It remains below the 20-day Exponential Moving Average (EMA) at 1.0545, signaling a bearish outlook.
The 14-day Relative Strength Index (RSI) hovers near 40.00, and a dip below this threshold could trigger further bearish momentum. Key support lies at the two-year low of 1.0330, while resistance is positioned at the 20-day EMA.
Key Events to Watch
Preliminary Eurozone and US PMI data
ECB President Lagarde's speech on economic resilience
US Federal Reserve policy meeting and dot plot projections
Conclusion
EUR/USD remains sensitive to central bank dynamics and macroeconomic data. While Eurozone economic struggles and dovish ECB expectations weigh on the Euro, resilience in the US economy and an active Fed policy decision create a supportive backdrop for the US Dollar. Near-term movement in the pair will depend on PMI outcomes and guidance from central bank policymakers.