- EUR/USD is trading around 1.0500 as market participants await the release of US CPI data for November and the ECB’s upcoming policy meeting.
- Investors anticipate that the ECB will implement a third consecutive 25 basis point rate cut.
- Fed’s Goolsbee projects that the US central bank will reach its neutral interest rate by the end of 2025.
EUR/USD is consolidating around 1.0550 during Monday’s European session, as investors await the European Central Bank (ECB) monetary policy decision on Thursday. The market is nearly fully priced in for a 25 basis point cut to the ECB’s Deposit Facility Rate, bringing it to 3%. Many ECB officials have expressed concerns about inflation risks falling below the bank’s target due to a weak economic outlook. If the ECB cuts rates, it would mark the third consecutive reduction this year, following a 75 basis point cut earlier.
Market sentiment is also shaped by the Eurozone’s economic challenges, particularly in Germany and France, the bloc’s largest economies.
Political uncertainty in these nations, including the recent turmoil in France after the no-confidence vote against Prime Minister Michel Barnier, has dampened growth expectations. France’s political instability, including Barnier’s swift departure and President Emmanuel Macron’s promise to find a new prime minister, further compounds concerns. Additionally, fears over the potential impact on exports, particularly with US President Donald Trump’s policies, remain a point of concern for the Eurozone economy.
Daily Digest: EUR/USD Consolidates Amid Strong Fed Dovish Expectations
- EUR/USD is trading sideways as the US Dollar struggles, bolstered by growing expectations that the Federal Reserve (Fed) will reduce its key borrowing rates in the upcoming policy meeting on December 18. The US Dollar Index (DXY), which measures the Greenback’s performance against six major currencies, has given up gains from the Asian session and is now struggling to maintain support around 106.00.
- According to the CME FedWatch tool, the likelihood of a 25 basis point rate cut to 4.25%-4.50% on December 18 has risen to 87%, up from 62% just a week ago. These dovish expectations intensified after the November Nonfarm Payrolls (NFP) report showed stronger-than-expected job growth.
- In a longer-term outlook, Chicago Fed President Austan Goolsbee indicated that the central bank is on track to reach a neutral interest rate around 3% by the end of next year, aligning with Fed officials’ projections from their September meeting.
- This week, market participants will closely watch the US Consumer Price Index (CPI) data for November, set to be released on Wednesday. Economists expect a slight uptick in the annual headline CPI to 2.7% from 2.6% in October, with core CPI, which excludes food and energy, anticipated to rise by 3.3%.
Technical Analysis: EUR/USD Holds Above 1.0500
EUR/USD continues to hover above the psychological level of 1.0500, with a bearish outlook prevailing. The 20-day EMA around 1.0580 serves as a strong resistance, limiting upside potential for the Euro bulls. The 14-day Relative Strength Index (RSI) has rebounded from oversold conditions, climbing above 40.00, indicating that bearish momentum has started to fade. However, the overall downtrend for the pair remains intact.
On the downside, the November 22 low at 1.0330 is a crucial support level to watch. If the pair manages to break above the 50-day EMA near 1.0700, it would signal a shift in momentum toward the bulls, but this remains a key barrier for the Euro.
