- EUR/USD remains range-bound around 1.0400 amid low trading volumes in a holiday-shortened week.
- ECB President Lagarde expressed confidence that inflation will return to the bank’s 2% target sooner than expected.
- UBS forecasts the Fed will implement two interest rate cuts in 2025, one in June and another in September.
EUR/USD remains range-bound, mirroring the movement of the US Dollar (USD) during North American trading hours on Tuesday. The US Dollar Index (DXY), which measures the Greenback against six major currencies, fluctuates in a narrow range above the key 108.00 support level, with trading volumes thin due to the holiday season and market closures for Christmas Day and Boxing Day.
The broader outlook for the USD remains positive, as the Federal Reserve has signaled fewer rate cuts for 2025. In its latest dot plot, the Fed projected just two rate cuts next year, down from the four cuts anticipated in September. UBS analysts predict the Fed will implement two 25-basis-point cuts in the June and September policy meetings. Recent comments from Fed officials reflect a more cautious approach to rate cuts, influenced by persistent inflation, stronger-than-expected labor market conditions, and the uncertainty surrounding President-elect Donald Trump’s economic policies.
Looking ahead, investors will focus on Thursday’s US Initial Jobless Claims data for the week ending December 20. With a light economic calendar, analysts are anticipating 218K new claims, a slight decrease from the previous week’s 220K.
Daily Digest Market Movers: EUR/USD Faces Continued Pressure Amid Dovish ECB Expectations
- EUR/USD is consolidating around 1.0400 during Tuesday’s North American session, maintaining its bearish trend. The Euro (EUR) weakened slightly on Monday after European Central Bank (ECB) President Christine Lagarde indicated in an interview with the Financial Times that the ECB is “very close” to meeting its medium-term inflation target of 2%. However, she cautioned that the central bank should stay vigilant regarding inflation in the services sector, which remains high at 3.9%, despite headline Eurozone inflation easing to 2.2%.
- Lagarde also expressed concerns about the EU’s response to potential tariffs from US President-elect Donald Trump, advising against retaliation, as such trade conflicts could harm the global economy.
- Dovish bets for the ECB in 2025 continue to gain traction, with traders expecting the central bank to cut its Deposit Facility rate by 25 basis points in each of the next four policy meetings, fueled by expectations of inflation returning to the 2% target.
Technical Analysis: EUR/USD Faces Strong Bearish Momentum
EUR/USD remains around 1.0400 on Tuesday, holding above the two-year low of 1.0330, but the overall outlook remains firmly bearish. All short- to long-term Exponential Moving Averages (EMAs) are trending lower, signaling persistent downward pressure. The 14-day Relative Strength Index (RSI) is within the bearish range of 20.00-40.00, further indicating a continuation of the downtrend.
If the pair breaks below the 1.0330 low, it could head towards the next round-number support at 1.0200. On the upside, the key resistance lies at the 20-day EMA near 1.0500, which will be a crucial barrier for any bullish reversal.
