- EUR/USD is testing the level below 1.0500 as the euro (EUR) continues to weaken, weighed down by expectations for further interest rate cuts from the ECB.
- The ECB is expected to cut deposit facility rates by 25 bps on Thursday for the third consecutive meeting.
- Investors are waiting for US inflation data to guide new interest rates.
EUR/USD extended its downside in Wednesday's European session around the psychological support of 1.0500. Strong expectations that the European Central Bank (ECB) will cut its deposit facility rate by 25 basis points (bps) to 3% at Thursday's policy meeting and the US dollar (USD) strengthening ahead of the US led to major currency pairs fell. State (US) Consumer Price Index (CPI) data for November.
This is the ECB's fourth interest rate cut this year and the third consecutive year.
A 25 basis point rate cut by the ECB is widely expected as policymakers become increasingly confident that inflation is under control and there are growing signs that business activity in the euro zone is struggling. Meanwhile, a small number of ECB officials see inflation at risk of falling below the central bank's target due to possible tariff threats from President-elect Donald Trump and weak domestic demand.
With traders pricing in Thursday's ECB rate cut, investors will be paying close attention to comments from Governor Christine Lagarde at her post-policy press conference on new interest rate guidance. Ms. Lagarde may make somewhat dovish statements, citing political instability in Germany and France and the potential negative impact of President Trump's tariffs on export sectors.
Daily Digest Market Trends: EUR/USD under pressure ahead of US inflation statistics
- EUR/USD is falling as the US dollar extends its winning streak for a fourth session ahead of the US inflation report due at 13:30 GMT. The US dollar index (DXY), which tracks the value of the US dollar against six major currencies, is rising above 106.50.
- Economists expect annual headline inflation to accelerate to 2.7% from October's 2.6%. Over the same period, core CPI, which excludes volatile food and energy prices, is expected to rise steadily by 3.3%. Month-on-month composite CPI and core CPI are estimated to have increased by 0.3%.
- The impact of the inflation data should not significantly change market expectations for the Federal Reserve's expected interest rate policy at its Dec. 18 policy meeting, unless there is a dramatic deviation from expectations. . Recent comments by a majority of Fed officials indicate confidence that inflation remains on a sustainable trajectory toward the Fed's 2% target.
- 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%.
Technical analysis: EUR/USD struggles to maintain 1.0500
EUR/USD is trading around the psychological value of 1.0500. The outlook for major currency pairs remains bearish as the 20-day EMA near 1.0565 remains a key resistance for Euro (EUR) bulls.
The 14-day Relative Strength Index (RSI) is fluctuating around 40.00. If the RSI falls below this level, bearish momentum will be triggered.
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.
