On Tuesday, the EUR/USD shed another fifth of a percent against the US Dollar. The Fed-centric US data docket is having a big influence on investor sentiment. Meanwhile, EU data is rather light this week, so traders are focusing a lot on the upcoming Federal Reserve (Fed) rate call.
Impact of European and US Data
The bullish momentum behind the Euro disappeared on Tuesday, pulling the pair back under the 1.0500 level. Traders are now waiting for the Fed’s last rate call of 2024. European markets largely ignored appearances by multiple European Central Bank (ECB) officials earlier in the week. Even though the European December PMI figures were better than expected, the Pan-EU Services PMI survey figures are still in contraction. This is due to concerns about a deepening economic slowdown in Europe, which is unsettling investors and businesses. On the US side, Retail Sales figures jumped up to 0.7% month-on-month. This has made some investors a bit worried that perhaps the Fed doesn’t need to cut rates as aggressively. Still, markets are generally pricing in a third straight rate cut from the Fed on Wednesday. According to the CME’s FedWatch Tool, there’s a 95% chance of a 25 basis points rate trim.
EUR/USD Price Forecast
The EUR/USD daily chart shows a period of consolidation just above the 1.0450 level. This comes after the pair had a steep decline from its late October highs near 1.1000. The recent stabilization matches up with investor expectations about the Fed’s anticipated quarter-point rate cut on Wednesday, which has added some uncertainty to the dollar’s path. The price action is capped by the 50-day Exponential Moving Average (EMA) at 1.0658. The longer-term bearish bias is emphasized by the 200-day EMA at 1.0809, which is sloping downward. If the pair breaks below the key support at 1.0450, bears could retest the psychological 1.0400 level that was a crucial floor in late November.
The MACD indicator at the bottom of the chart indicates that bearish momentum has eased a bit. The MACD line is flattening and approaching a bullish crossover with the signal line. However, the histogram is still in negative territory, meaning that attempts to go up might still face big obstacles. If the Fed cuts rates on Wednesday and has a dovish tone, it could weaken the dollar more and make it possible for the EUR/USD pair to rebound toward 1.0600 and potentially reach the 50-day EMA resistance. On the other hand, if there’s a hawkish surprise, it could strengthen the dollar, trigger more selling pressure on the EUR/USD pair, and lead to a retest of the yearly lows. Traders are likely to be cautious before the Fed’s decision, which will probably keep price action in a narrow range in the short term.
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