Eur/Usd near 1.04 on cooling inflation, light trading
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The EUR/USD pair trades in a narrow range near 1.0400 during a holiday-shortened week. While cooling Eurozone inflation supports expectations of dovish ECB policy in 2025, persistent US Dollar strength caps any meaningful recovery. Technical indicators continue to signal a bearish outlook for the pair.
Muted Price Action Amid Thin Volumes
EUR/USD remains range-bound as the holiday season reduces trading activity, with the pair struggling to gain traction near 1.0400. Thin volumes in the forex markets due to Christmas Day and Boxing Day have kept the price action subdued. Both currencies face limited catalysts this week, contributing to the consolidation.
Eurozone Inflation and ECB Outlook
The Euro weakened slightly on Monday following dovish comments from ECB President Christine Lagarde. While headline Eurozone inflation has eased to 2.2%, service inflation remains elevated at 3.9%, underscoring the need for vigilance. Lagarde reaffirmed confidence in achieving the bank’s 2% inflation target sustainably but cautioned against complacency in addressing inflationary pressures within the services sector.
Markets are pricing in four 25-bps ECB rate cuts in 2025, reflecting expectations that the central bank will continue easing monetary policy as inflation pressures recede. These dovish bets are likely to weigh on the Euro in the near term, particularly against a resilient US Dollar.
US Dollar Holds Firm Amid Fed’s Measured Approach
The US Dollar Index (DXY) oscillates above the key support level of 108.00, reflecting subdued trading activity and a lack of significant macroeconomic drivers. The broader outlook for the USD remains firm following the Federal Reserve’s December policy meeting, where it signaled a more cautious approach to rate cuts in 2025.
The Fed’s latest dot plot projects only two 25-bps rate cuts in June and September, compared to four cuts previously expected. This measured approach is supported by persistent inflation, a robust labor market, and uncertainty surrounding incoming economic policies from President-elect Donald Trump.
Key Data Ahead
Investors are now focused on the release of US Initial Jobless Claims data for the week ending December 20, due on Thursday. Analysts expect the number of new jobless claims to decline slightly to 218K from the previous 220K. With a light US economic calendar this week, this data point will likely influence short-term USD dynamics.
Technical Outlook: Bearish Bias Persists
From a technical perspective, EUR/USD continues to exhibit a bearish structure:
Support Levels: Immediate support lies at the two-year low of 1.0330, with a break below potentially targeting the psychological level of 1.0200. Resistance Levels: The 20-day EMA near 1.0500 serves as the first key resistance for the pair, and a break above this level could signal short-term relief for Euro bulls.
Momentum Indicators: The 14-day Relative Strength Index (RSI) remains in the bearish range of 20.00-40.00, indicating persistent downside momentum.
Outlook The EUR/USD pair is expected to remain under pressure as long as the Fed’s relatively hawkish stance contrasts with the ECB’s dovish trajectory. Thin trading volumes and limited data releases may lead to subdued price action for the remainder of the holiday-shortened week. A decisive break below 1.0330 would reinforce the bearish outlook, while a recovery above 1.0500 is needed to signal a potential trend reversal.
Muted Price Action Amid Thin Volumes
EUR/USD remains range-bound as the holiday season reduces trading activity, with the pair struggling to gain traction near 1.0400. Thin volumes in the forex markets due to Christmas Day and Boxing Day have kept the price action subdued. Both currencies face limited catalysts this week, contributing to the consolidation.
Eurozone Inflation and ECB Outlook
The Euro weakened slightly on Monday following dovish comments from ECB President Christine Lagarde. While headline Eurozone inflation has eased to 2.2%, service inflation remains elevated at 3.9%, underscoring the need for vigilance. Lagarde reaffirmed confidence in achieving the bank’s 2% inflation target sustainably but cautioned against complacency in addressing inflationary pressures within the services sector.
Markets are pricing in four 25-bps ECB rate cuts in 2025, reflecting expectations that the central bank will continue easing monetary policy as inflation pressures recede. These dovish bets are likely to weigh on the Euro in the near term, particularly against a resilient US Dollar.
US Dollar Holds Firm Amid Fed’s Measured Approach
The US Dollar Index (DXY) oscillates above the key support level of 108.00, reflecting subdued trading activity and a lack of significant macroeconomic drivers. The broader outlook for the USD remains firm following the Federal Reserve’s December policy meeting, where it signaled a more cautious approach to rate cuts in 2025.
The Fed’s latest dot plot projects only two 25-bps rate cuts in June and September, compared to four cuts previously expected. This measured approach is supported by persistent inflation, a robust labor market, and uncertainty surrounding incoming economic policies from President-elect Donald Trump.
Key Data Ahead
Investors are now focused on the release of US Initial Jobless Claims data for the week ending December 20, due on Thursday. Analysts expect the number of new jobless claims to decline slightly to 218K from the previous 220K. With a light US economic calendar this week, this data point will likely influence short-term USD dynamics.
Technical Outlook: Bearish Bias Persists
From a technical perspective, EUR/USD continues to exhibit a bearish structure:
Support Levels: Immediate support lies at the two-year low of 1.0330, with a break below potentially targeting the psychological level of 1.0200. Resistance Levels: The 20-day EMA near 1.0500 serves as the first key resistance for the pair, and a break above this level could signal short-term relief for Euro bulls.
Momentum Indicators: The 14-day Relative Strength Index (RSI) remains in the bearish range of 20.00-40.00, indicating persistent downside momentum.
Outlook The EUR/USD pair is expected to remain under pressure as long as the Fed’s relatively hawkish stance contrasts with the ECB’s dovish trajectory. Thin trading volumes and limited data releases may lead to subdued price action for the remainder of the holiday-shortened week. A decisive break below 1.0330 would reinforce the bearish outlook, while a recovery above 1.0500 is needed to signal a potential trend reversal.