- EUR/USD dips below the 1.0500 mark as the Euro (EUR) softens, pressured by expectations of additional ECB rate cuts.
- The ECB is anticipated to lower its Deposit Facility rate by 25 basis points on Thursday, marking the third consecutive reduction.
- Market participants are focused on upcoming US inflation data for further interest-rate insights.
EUR/USD extended its downside during Wednesday’s European session, testing support below the psychological 1.0500 level. The pair remains under pressure amid firm expectations that the European Central Bank (ECB) will reduce its Deposit Facility rate by 25 basis points (bps) to 3% at Thursday’s policy meeting. This would mark the ECB’s third consecutive rate cut and the fourth this year, reflecting policymakers’ growing confidence that inflation is under control. Additionally, signs of weakening business activity in the Eurozone contribute to the dovish outlook.
Some ECB officials warn of risks that inflation could undershoot the central bank’s target, citing weak domestic demand and potential tariff threats from US President-elect Donald Trump. Market participants are also closely monitoring ECB President Christine Lagarde’s post-meeting remarks for additional rate guidance. Her tone may remain cautious due to ongoing political instability in Germany and France and concerns over potential trade disruptions impacting the Eurozone's export sector.
Daily Market Movers: EUR/USD Pressured Ahead of US Inflation Data
- The US Dollar continues to strengthen, buoyed by expectations surrounding the upcoming US Consumer Price Index (CPI) data. The US Dollar Index (DXY) climbed above 106.50, extending its winning streak for the fourth consecutive session.
- Economists project annual headline inflation in the US to have accelerated to 2.7% in November from 2.6% in October. Core CPI, which excludes food and energy, is forecast to maintain a steady growth rate of 3.3% year-over-year. Monthly headline and core readings are both expected to rise by 0.3%.
- The inflation data is unlikely to significantly alter market expectations for the Federal Reserve’s December 18 policy decision unless there is a substantial deviation from forecasts.
- The CME FedWatch tool indicates a nearly 90% probability that the Fed will reduce interest rates by 25 bps to a target range of 4.25%-4.50%. Recent comments from Fed officials suggest confidence in inflation remaining on a sustainable trajectory toward the 2% target.
Technical Analysis: EUR/USD Struggles Below Key Levels
EUR/USD remains bearish, hovering near the critical 1.0500 mark. The 20-day Exponential Moving Average (EMA) around 1.0565 acts as a major resistance level, limiting upward momentum for the Euro.
The 14-day Relative Strength Index (RSI) stands near 40.00. A drop below this level could trigger further bearish momentum.
Key support lies at the November 22 low of 1.0330. A breach below this level could accelerate selling pressure.
On the upside, the 50-day EMA near 1.0700 is a critical resistance level for Euro bulls to reclaim.
Traders will closely watch Thursday’s ECB decision and President Lagarde’s commentary for clues on future monetary policy direction. Concurrently, US inflation data at 13:30 GMT will provide insights into the Federal Reserve’s next steps. With the ECB expected to cut rates and the Fed maintaining a cautious stance, EUR/USD may face further downside risks in the near term.
