- EUR/USD fell to around 1.0530 as investors awaited major events such as US inflation and the ECB policy meeting.
- The ECB is widely expected to cut deposit facility rates by 25 basis points to 3% on Thursday.
- Economists expect U.S. annual core CPI to have grown steadily by 3.3% in November.
EUR/USD fell to around 1.0530 in European trading on Tuesday as investors grew cautious ahead of Thursday's European Central Bank (ECB) monetary policy meeting. Traders are pricing in a 25 basis point (bps) cut in deposit facility interest rates to 3%. This is the third consecutive rate cut by the ECB.
Market experts believe that a number of factors, including Donald Trump's victory in the US presidential election, political turmoil in France and Germany, and a sharp slowdown in business activity in the euro area, have prompted financial market participants to cut interest rates. It is assumed that they had no choice but to include this. at Thursday's policy meeting.
The fall of the French government and instability in Germany and France could have a direct impact on economic growth in the euro area, weighing on price pressures as these two countries are the trading bloc's largest economies. Dew. The impact of Trump's tariffs on inflation in the euro zone remains unclear when he arrives in the White House.
ECB policymakers disagree over whether President Trump's tariffs will have an inflationary or deflationary effect on the euro zone economy. A few ECB policymakers envisage a scenario in which President Trump's tariffs would cause the euro (EUR) to depreciate significantly against the US dollar, making imports more expensive for individuals and increasing price pressure. On the contrary, some officials foresee a risk that inflation will fall below the central bank's target as higher tariffs weaken the eurozone's export sector.
Daily Digest Market Trends: US Inflation Focuses, EUR/USD Declines
- EUR/USD fell as the US dollar (USD) strengthened as investors awaited the release of US Consumer Price Index (CPI) statistics for November, scheduled for Wednesday. In the inflation report, the annual headline CPI is expected to rise at a fast pace to 2.7% from the previously announced 2.6%. Core CPI, which excludes volatile food and energy prices, is expected to rise steadily by 3.3%.
- Inflation data is unlikely to affect the Fed's interest rate forecasts at its Dec. 18 policy meeting unless the data deviates significantly from expectations.
- According to CME's FedWatch tool, there is a nearly 90% chance that the Fed will cut interest rates by 25 basis points to between 4.25% and 4.50%. Maguire analysts agree with the market's expectation that the Fed will cut rates next week, but expect the Fed to be slightly more hawkish in guiding rates.
- Macquarie analysts said: “A recent slowdown in the pace of US disinflation, lower unemployment than the Fed expected in September, and strength in US financial markets are contributing to this hawkish stance.” said.
Technical analysis: EUR/USD maintains important support at 1.0500
EUR/USD remains above the psychological level of 1.0500. The outlook for major currency pairs remains bearish as the 20-day EMA near 1.0573 remains a key resistance for euro (EUR) bulls.
The 14-day Relative Strength Index (RSI) turned oversold and then rebounded above 40.00, suggesting bearish momentum has faded. However, it appears that the broader bearish trend for this currency pair is not over yet.
On the downside, the November 22nd low of 1.0330 will provide important support. On the contrary, the 50-day EMA near 1.0700 will be a key barrier for euro bulls.
