- EUR/USD has provisional support around 1.0220. However, further declines seem likely.
- The Fed is expected to cut interest rates twice this year.
- Investors are awaiting December US ISM manufacturing PMI and German HICP data.
EUR/USD found temporary support in North American trading on Friday after plummeting to near 1.0220, its lowest level in more than two years, on Thursday. Market experts believe that the major currency pairs will fall further and reach parity due to disagreements over the monetary policy outlook between the Federal Reserve (Fed) and the European Central Bank (ECB).
On the left side of the Atlantic, Fed officials are guiding for a smaller rate cut in 2025, while on the right, ECB policymakers expect the cycle of policy easing to continue at the current pace.
Fed officials expect the federal funds rate to trend towards 3.9% by the end of the year, according to the latest dot plot in the Fed's Economic Forecast Summary. This shows policymakers expect two rate cuts this year, compared to four expected in September.
Market participants also reduced their dovish view of the Fed. They expect policies under President-elect Donald Trump's administration, including tougher immigration, higher import duties and tax cuts, to boost U.S. economic growth and inflationary pressures.
The U.S. Dollar Index (DXY), which tracks the dollar's value against six major currencies, fell slightly on Friday, but is still near a two-year high above 109.00.
Going forward, investors will be paying close attention to a number of economic indicators related to the U.S. labor market that influence the Fed's interest rate expectations. At this point, it is almost certain that the Fed will keep interest rates unchanged in the 4.25%-4.50% range at its January policy meeting.
In Friday's trading, the US dollar will be guided by December US ISM Manufacturing Purchasing Managers' Index (PMI) data, which will be released at 15:00 GMT. The PMI is expected to remain at 48.4, suggesting that manufacturing activity is contracting at a steady pace.
Daily Digest Market Trends: EUR/USD under pressure as Germany's HICP is in focus
- Traders are pricing in a 113 basis points (bps) rate cut by the ECB this year, making it unlikely that EUR/USD will hold the immediate support at 1.0220. This suggests that there will be at least four 25 basis point rate cuts as the risk of euro zone inflation falling below the central bank's 2% target increases.
- ECB officials are also relieved that the market has priced in four rate cuts. On Thursday, ECB Governing Council member and Bank of Greece Governor Yanis Stournaras said in an interview on Sky Radio that the central bank's benchmark interest rate should fall to “around 2%” by “early autumn of this year.” This indicates that the ECB will cut deposit facility rates at each of its next four policy meetings.
- Apart from the risk that inflation will remain low, the potential impact of weak economic activity and the trade war with the US on the eurozone export sector also supports the ECB's dovish view. . On Thursday, the December HCOB Manufacturing PMI compiled by S&P Global showed manufacturing activity contracted at a slightly faster pace than preliminary estimates. The manufacturing PMI was 45.1, with preliminary figures at 45.2.
- Investors will now focus on the preliminary German and Eurozone Harmonized Consumer Price Index (HICP) figures for December, to be released on Monday and Tuesday, respectively.
today's euro price
The table below shows the percentage change of the Euro (EUR) against the major listed currencies today. The euro was the strongest against the US dollar.
| USD | EUR | GBP | JPY | CAD | australian dollar | new zealand dollar | swiss franc | |
|---|---|---|---|---|---|---|---|---|
| USD | -0.35% | -0.24% | -0.35% | -0.02% | -0.29% | -0.23% | -0.39% | |
| EUR | 0.35% | 0.11% | -0.03% | 0.34% | 0.06% | 0.12% | -0.04% | |
| GBP | 0.24% | -0.11% | -0.10% | 0.22% | -0.04% | 0.01% | -0.15% | |
| JPY | 0.35% | 0.03% | 0.10% | 0.33% | 0.06% | 0.12% | -0.03% | |
| CAD | 0.02% | -0.34% | -0.22% | -0.33% | -0.27% | -0.21% | -0.35% | |
| australian dollar | 0.29% | -0.06% | 0.04% | -0.06% | 0.27% | 0.06% | -0.11% | |
| new zealand dollar | 0.23% | -0.12% | -0.01% | -0.12% | 0.21% | -0.06% | -0.16% | |
| swiss franc | 0.39% | 0.04% | 0.15% | 0.03% | 0.35% | 0.11% | 0.16% |
The heat map shows the percentage change between major currencies. The base currency is selected from the left column and the quote currency is selected from the top row. For example, if you select EUR from the left column and move along the horizontal line to USD, the percentage change displayed in the box represents EUR (Basic)/USD (Quote).
Technical analysis: EUR/USD looks set to fall further to around 1.0100
EUR/USD faced a sharp decline after falling below a two-year low of 1.0330 on Thursday. The outlook for major currency pairs is generally bearish, as the 20-week exponential moving average (EMA) has fallen to 1.0620.
The 14-week Relative Strength Index (RSI) has fallen to near 30.00, indicating strong downward momentum. However, a slight recovery cannot be ruled out as the momentum oscillator has turned oversold.
Looking down, the pair could find support near round level support at 1.0100. On the contrary, the weekly high of 1.0458 will be a key barrier for euro bulls.
