With a partial return of price movements, the euro/dollar exchange rate “EUR/USD” continued its upward rebound with gains that reached the 1.1045 resistance level, the highest for the pair in four months. Recently, EUR/USD pair is consolidating around its gains at the time of writing, as the US dollar remains weaker since recent indications of an imminent abandonment of US monetary policy tightening in the new year.
Currently, the US Federal Reserve is walking a tightrope, trying to slow the US economy enough through rate hikes to cool inflation, but not so much that it pushes the country into recession. As a result, traders are still largely betting that the Fed will cut the benchmark interest rate by at least 1.50 percentage points by the end of next year, according to data from CME Group. Recently, the federal funds rate ranges between 5.25% and 5.50%, at its highest level in over two decades.
The Federal Reserve released forecasts earlier this month showing that typical policymakers expect to cut the federal funds rate several times next year, but likely only by half what Wall Street markets expect. Therefore, many expect too much optimism about the pace of interest rate cuts early in the year, and that the surge in stocks since late October in anticipation of such support may be overdone.
In contrast, Nordea Bank expects that the European Central Bank will be more determined to maintain its restrictive policy stance despite the significant economic risks. He added, “We find that the European Central Bank’s views on growth expectations in the euro area are somewhat optimistic, and we see that the risks tend toward an early start to lowering interest rates.” However, considering the ECB's reluctance to even consider cutting interest rates at this stage, we maintain our baseline expectation that the ECB will start cutting interest rates in June 2024.
Regarding the Forex currency markets, Nordea Bank notes that “interest rate cuts in the US faster than elsewhere indicate further dollar weakness.” Also, US interest rate cuts should support the global economy, commodity and energy prices and risk sentiment. Overall, Nordea Bank remains concerned about the overall outlook and the risk of events spoiling the positive risk sentiment.
EUR/USD technical Analysis Today:
As we mentioned before, and we confirm now, the stability of the price of the EUR/USD currency pair, EUR/USD, remains around and above the psychological resistance of 1.1000, supporting the bulls’ control over the trend. If the dollar’s weakness continues, the bulls may find the opportunity to move further upward, and the resistance levels may be 1.1065 and 1.1120. technically, the targets are the following, which in turn may push technical indicators towards overbought levels. On the other hand, EUR/USD will not abandon its current bullish view without returning to the support area of 1.0885. Today, the EUR/USD pair is not anticipating important and influential data from the Eurozone or the United States of America, and investor sentiment will have the strongest impact amidst unstable trading due to the annual holiday season.
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