- EUR/USD rebounds to around 1.0270 as the US Dollar weakens, with investors closely watching December’s US PPI data.
- President-elect Donald Trump’s policies are anticipated to drive higher US inflation and economic growth.
- ECB’s Rehn suggests monetary policy tightening could end by mid-summer.
EUR/USD continues its recovery from Monday’s over two-year low of 1.0175, trading near 1.0270 during Tuesday’s European session. The pair strengthens as the US Dollar (USD) experiences a modest pullback, with the US Dollar Index (DXY)—which measures the Greenback against six major currencies—trading subdued around 109.50.
Despite the correction, the US Dollar’s strong near-term trend remains intact. Data from the CME FedWatch tool indicates that 30-Day Fed Funds futures point to a higher likelihood of just one interest rate cut from the Federal Reserve (Fed) this year, compared to the two cuts projected in the latest Fed Summary of Economic Projections (SEP).
Traders have reduced expectations of a dovish Fed pivot following robust labor market data, including last Friday’s strong US Nonfarm Payrolls (NFP) report, which signals a resilient economic outlook. Additionally, inflationary pressures are expected to persist under President-elect Donald Trump’s administration, as proposed policies—such as tighter immigration controls, tariff increases, and tax cuts—are likely to drive higher aggregate demand and economic growth.
Investors will turn their attention to key inflation updates, with the US Consumer Price Index (CPI) for December set to be released on Wednesday. In the meantime, focus will remain on Tuesday’s US Producer Price Index (PPI) data for December, scheduled for release at 13:30 GMT. Headline PPI is projected to accelerate to 3.4% year-on-year from November’s 3%, while core PPI—excluding food and energy—is expected to rise to 3.7%, up from 3.4% in the previous reading.
Daily Market Movers: EUR/USD Rises as US Dollar Softens
- EUR/USD rebounds amid US Dollar weakness: The Euro (EUR) gains against the US Dollar, though its broader outlook remains fragile. European Central Bank (ECB) officials continue to signal further policy easing, driven by weak Eurozone economic prospects. Concerns linger that US President-elect Donald Trump could impose steep tariffs on Europe, threatening the region’s export sector.
- ECB’s Rehn offers cautious optimism: ECB policymaker and Bank of Finland Governor Olli Rehn stated on Monday that monetary policy could exit restrictive levels by midsummer. However, Rehn appeared unconcerned about potential US trade tariffs, suggesting businesses may adapt by finding alternative routes, as seen in trade shifts between the US and China, according to Reuters.
- ECB rate cuts expected: Markets anticipate the ECB will reduce interest rates in each of its next four policy meetings, likely bringing the Deposit Facility Rate down to 2%. Barclays analysts predict the Eurozone will enter 2025 on a weak footing, citing significant challenges in Germany’s manufacturing sector as a key drag on growth.
Technical Analysis: EUR/USD Rebounds from Over Two-Year Low of 1.0175
EUR/USD climbs to around 1.0270 during Tuesday’s European session, recovering from Monday’s more-than-two-year low of 1.0175. However, the broader outlook remains bearish as the 20-week Exponential Moving Average (EMA) trends lower at 1.0585.
The 14-week Relative Strength Index (RSI) has dropped below 30.00, signaling strong downside momentum.
On the downside, immediate support is seen near the October 2022 high of 1.0100. On the upside, resistance lies at the January 6 high of 1.0437, a key level for Euro bulls to overcome.
