- The EUR/USD exchange rate has proven to be a resilient pair in recent days.
- Moreover, it appears to be vulnerable to another repricing in expectations of an interest rate cut from the US Federal Reserve, which would pave the way to lower levels.
- Obviously, With the start of this week's trading and amid an American holiday, the EUR/USD moved in a narrow range between the 1.0933 level and the 1.0967 level, and the slope is still bearish.
Meanwhile, 2024 saw the market's odds of a US interest rate cut being lowered in March by the Fed, but with a 65% probability still attached to such a move, there is still plenty of scope for a lower re-pricing in the odds of a rate cut. If this happens, the EUR/USD price should resolve the recent range-bound trade by breaking down. In this regard, Sean Osborne, Forex analyst at Scotiabank, says: “The swap pricing indicates a relatively high degree - all things considered - of conviction that the Fed will cut US interest rates in March, and that seems very rich to me.”
Regarding the near-term EUR/USD outlook, the analyst says: “Broader technical signals continue to point to a major peak/reversal forming around the Euro top above the 1.11 resistance at the turn of the year. Also, “The risks are tilted towards further corrective weakness in the direction towards the euro.”
For his part, Roberto Mielich, Forex analyst at UniCredit, says that the EUR/USD is confined to the middle of the 1.09-1.10 range, with the pair continuing to show difficulty in breaking above the 1.10 resistance and reaching the next resistance level between 1.1040 and 1.1050 before the final peak. At 1.10. 1.1139. The analyst adds, “At the same time, the single currency - the euro - is still holding on to the line above 1.09.”
For his part, Tanmay Purohit, a technical analyst at Société Générale, said, “The EUR/USD price’s move upward from its lowest levels in October 2023 faced temporary resistance near the 1.1100-1.1150 graphic levels, which represents its highest levels in April 2023”.
EUR/USD Technical Analysis and Forecast:
Overall, a sharp decline has taken shape, but it should be noted that the EUR/USD pair is still holding above the 200-day moving average at 1.0840, which constitutes near-term support. Therefore, if this is violated, there will be a risk of a deeper move down.” The analyst adds that a gradual rebound of the euro dollar towards the 1.1100-1.1150 resistance areas cannot be ruled out in the short term. Furthermore, a move above would be necessary to confirm a larger upward move towards the July 2023 peak near 1.1275.
According to what is expected for trading, this week in the euro zone will be characterized by the release of industrial production numbers, as the markets are looking forward to a realistic reading of -5.9% on an annual basis for the month of November. Moreover, we do not expect a strong market response to these numbers, given that November industrial production data in Germany was released only last week. Today, Germany is in focus with the release of the ZEW Economic Outlook survey results in time for January, which could influence the market.
Ultimately, the German sentiment component is expected to read at 12.7, and the current situation component at -77. Any rise may confirm that the German economy has reached rock bottom and constitute a kind of positive surprise that could boost the euro price.
On the US dollar front, Wednesday sees US retail sales released at 1:30 GMT, which should give an indication of the strength of the consumer base, a crucial component of US inflation expectations. Also, markets expect US retail sales to rise by 0.3% on a monthly basis in December, with any major surprise likely to support the dollar.
Thursday will see US new home data released at 1:30 GMT, with the market expecting new homes to start at a rate of 1.45 million per month in December. At the same time, US weekly unemployment claims will be announced, where they are expected to reach 207 thousand claims. Thus, this version tends to give a view on how the Labor market is evolving. Overall, the US Labor market has been slowing steadily but is nonetheless still strong and continues to frustrate dollar speculators looking for imminent interest rate cuts from the Federal Reserve. The dollar price may remain supported considering another strong reading.
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