- The EUR/USD pair fell slightly as investors focused on political instability in France as a vote of no confidence in the prime minister loomed.
- ECB President Holzmann supported a 25 basis point rate cut at the December 12 policy meeting.
- Investors will also be watching US private employment and services PMI data for November.
EUR/USD fell but held important support at 1.0500 during Wednesday's European trading hours. Major currency pairs were largely flat as investors awaited a no-confidence vote against Prime Minister Michel Barnier by France's far-right and left-wing parties. The vote heightened political uncertainty in the euro zone's second-largest country, as it raised the possibility of the French government collapsing and negatively impacting the euro zone (EUR).
Looking at the economic calendar, investors will also keep an eye on November United States (US) ADP employment changes and ISM Services Purchasing Managers' Index (PMI) data to be released during the North American session.
Economists expect the U.S. private sector to add 150,000 new jobs in November, well below the 233,000 jobs in October. Over the same period, the Services PMI, which measures service sector activity, is estimated to fall to 55.5 from the previously announced 56.0, suggesting a slowdown in growth.
Economic data will influence market expectations for the Federal Reserve's expected interest rate policy at its December 18 monetary policy meeting. There is a 74% chance that the Fed will cut its key borrowing rate by 25 basis points (bps). According to the CME FedWatch tool, the probability that interest rates will remain unchanged at current levels is 4.25-4.50%, with a probability of 26%.
During Wednesday's session, investors will also be watching for Chairman Powell's speech on the Fed's Beige Book and new interest rate guidance.
Meanwhile, a number of Fed officials have said recently that further rate cuts are appropriate as inflation continues to cool. “We expect it is appropriate to continue to move toward more neutral policy settings over time,” New York Fed President Williams said Monday. However, Williams did not set a target for the federal funds rate, saying the path would depend on data.
The US dollar (USD) is trending subdued in the face of private sector employment and service sector activity data. The US dollar index (DXY), which tracks the dollar's value against six major currencies, is hovering around 106.30.
The outlook for the US dollar remains largely positive as US President-elect Donald Trump hinted at the possibility of imposing 100% tariffs on BRICS. “The idea that the BRICS countries are going to move away from the dollar while we sit by is over,” President Trump said in a social media post over the weekend.
A daily digest that moves the market: EUR/USD continues to lose ground as France's no-confidence vote takes center stage
- France's no-confidence debate is scheduled to begin at 3pm GMT, and the vote is expected to take place sooner. After Marine Le Pen announced on Monday that her party would vote to overthrow the government, someone from the left-wing party would need to change positions for Barnier to win votes and avoid government collapse. Become.
- EUR/USD rose slightly as the US dollar fell. Meanwhile, the outlook for the euro (EUR) remains weak as European Central Bank (ECB) officials support further rate cuts. Traders expect the ECB to cut its key borrowing rate again at its December 12 monetary policy meeting, but there are mixed views on the size of the expected cut.
- ECB policymaker and Austrian central bank governor Robert Holzmann said in an interview with the Oberosterreichsche Nachrichten newspaper on Tuesday: “Based on current data, a cut of 0.25 percentage points is conceivable. I don't think I can think of anything more.”
- Asked about his views on the eurozone's inflation outlook, Holzmann said he believed President Trump's tariff policies were skewing inflation risks to the upside. However, the extent of that impact will depend on how the prime minister implements his policies.
- On the contrary, ECB board member Piero Cipollone said on Tuesday that US tariffs would weaken the economy, which would lead to lower consumption and less pressure on prices.
Technical analysis: EUR/USD fluctuates around 1.0500
In European trading on Wednesday, EUR/USD traded in a narrow range around 1.0500. The outlook for the major currency pairs remains bearish as all short- to long-term intraday EMAs have declined, indicating a downtrend.
The 14-day Relative Strength Index (RSI) is hovering around 40.00, suggesting bearish momentum is waning. However, the bearish trend has not disappeared.
On the downside, the November 22 low of 1.0330 will provide important support for euro bulls. On the contrary, the 50-day EMA near 1.0750 will be a key barrier for euro bulls.
