The EUR/USD is trading within a narrow band close to 1.0500. This consolidation is happening as investors direct their attention to the upcoming Federal Reserve policy meeting.
Fed’s Anticipated Actions
Market watchers widely predict that the Fed will cut interest rates by 25 basis points. However, it is also expected that the Fed will accompany this rate cut with somewhat hawkish remarks in terms of policy guidance. Analysts from Bank of America foresee the rate being reduced to the 4.25%-4.5% range. The CME FedWatch tool confirms that the market has factored in this 25 bps rate cut. With this rate cut seemingly a given, investors are now mainly focused on the press conference by Fed Chair Jerome Powell to get insights into future interest rate guidance. Bank of America analysts anticipate Powell to hint at a gradual rate-cutting path and potentially a pause in January if economic data aligns with expectations. Traders also seem confident, as per the CME FedWatch tool, that the Fed will keep rates unchanged in January.
ECB’s Influence on the EUR
The Euro has shown a mixed performance. While it has gained ground across various currency pairs on Wednesday, its overall outlook remains bearish. This is because investors expect the European Central Bank (ECB) to work towards reaching the neutral rate of around 2% by the first half of 2025. Traders are also anticipating rate cuts at each ECB meeting until June 2025. ECB policymaker Pierre Wunsch has made very dovish statements regarding the policy outlook. He mentioned in an interview that he envisions “four more rate cuts” in 2025 and also pointed out that Euro parity with the US Dollar might be needed to counter the impact of US tariffs on Eurozone growth. Another ECB policymaker, Olli Rehn, said that inflation stabilizing near the 2% target sets the stage for further rate cuts, though he didn’t specify a particular rate cut path.
EUR/USD Technical Analysis
Recent Price Behavior
Over the past five trading days, the EUR/USD has fluctuated around 1.0500. The pair is facing pressure near the 20-day Exponential Moving Average (EMA), which is currently at around 1.0535. This indicates a bearish trend in the near term.
Technical Indicators
The 14-day Relative Strength Index (RSI) is hovering around 40.00. If the RSI (14) drops below this level, it could trigger stronger bearish momentum.
Support and Resistance Levels
Looking at the downside, the two-year low of 1.0330, which was hit on November 22, will act as a crucial support level. On the upside, the December 6 high of 1.0630 will be a significant barrier for those bullish on the Euro.
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