- EUR/USD finds transient support near 1.0220; however, further declines are likely.
- The Fed is expected to cut interest rates twice this year.
- Investors are waiting for December PMI data for the American ISM industry and the German HICP index.
The EUR/USD rate found transient support during Friday’s session in North America after falling to around 1.0220 on Thursday, the lowest level in over two years. Market experts see the main currency pair continuing to fall into parity between the Federal Reserve (Fed) and the European Central Bank (ECB)’s divergent views on the outlook for monetary policy.
On the left side of the Atlantic, Fed officials have recommended tapering rate cuts in 2025, while on the right, ECB policymakers see the easing cycle continuing at the current pace.
According to the latest scatter plot in the Fed’s Summary of Economic Projections, Fed officials project that federal funds rates will rise to 3.9% by the end of the year. This means that policymakers expect two interest rate cuts this year compared to the four forecasted in September.
Market participants also moderated the Fed’s dovish stance. They expect policies under President-elect Donald Trump, such as restrictive immigration, higher import tariffs and lower taxes, to enhance growth rates and inflationary pressures in the United States (US) economy.
The U.S. Dollar Index (DXY), which tracks the value of the dollar against six major currencies, fell on Friday but still remains near a two-year high above 109.00.
Going forward, investors will pay close attention to a number of economic indicators related to the U.S. labor market that will impact the Fed’s interest rate expectations. Currently, the Fed is almost certain to keep interest rates unchanged at the January policy meeting in the range of 4.25%-4.50%.
At Friday’s session, the US dollar will be guided by data from the US ISM Manufacturing Managers Index (PMI) for December, which will be published at 15:00 GMT. The PMI is expected to remain at 48.4, suggesting that manufacturing sector activity is dwindling at a steady pace.
Today’s price in US dollars
The table below shows the current percentage change of the United States Dollar (USD) against the major listed currencies. The US dollar was strongest against the Canadian dollar.
| USD | EUR | GBP | JPY | BOOR | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | -0.31% | -0.22% | -0.22% | 0.06% | -0.26% | -0.26% | -0.37% | |
| EUR | 0.31% | 0.08% | 0.05% | 0.37% | 0.05% | 0.05% | -0.06% | |
| GBP | 0.22% | -0.08% | 0.00% | 0.29% | -0.04% | -0.03% | -0.14% | |
| JPY | 0.22% | -0.05% | 0.00% | 0.28% | -0.04% | -0.03% | -0.14% | |
| BOOR | -0.06% | -0.37% | -0.29% | -0.28% | -0.33% | -0.32% | -0.43% | |
| AUD | 0.26% | -0.05% | 0.04% | 0.04% | 0.33% | 0.00% | -0.11% | |
| NZD | 0.26% | -0.05% | 0.03% | 0.03% | 0.32% | -0.01% | -0.12% | |
| CHF | 0.37% | 0.06% | 0.14% | 0.14% | 0.43% | 0.11% | 0.12% |
The heat map shows the percentage changes of the major currencies relative to each other. The base currency is selected from the left column and the quote currency from the top row. For example, if you select the US dollar from the left column and move along the horizontal line to the Japanese yen, the percentage change displayed in the box will represent USD (base)/JPY (quote).
Daily market update: EUR/USD walks a tightrope, German HICP in focus
- EUR/USD is unlikely to maintain immediate support at 1.0220 as investors have priced in an ECB rate cut of 113 basis points (bps) this year. This suggests there will be at least four interest rate cuts of 25 basis points against a backdrop of deepening risks that euro zone inflation falls below the central bank’s 2% target.
- ECB officials also have no problem pricing the four interest rate cuts to market. On Thursday, ECB Governing Council member and Bank of Greece Governor Yannis Stournaras said in an interview with Skai Radio that the central bank’s key interest rates should fall to “around 2%” around “autumn this year.” This means that the ECB will reduce the deposit rate at each of the next four policy meetings.
- In addition to the risk of continued low inflation, feeble economic activity and the likely impact of the trade war with the US on the euro zone’s export sector also reinforce the ECB’s dovish stance. On Thursday, S&P Global’s December HCOB Manufacturing PMI showed that manufacturing sector activity was falling at a slightly faster pace than the preliminary reading. The manufacturing PMI was 45.1 compared to the preliminary estimate of 45.2.
- Going forward, investors will focus on the preliminary Harmonized Index of Consumer Prices (HICP) data for Germany and the euro area for December, which will be published on Monday and Tuesday, respectively.
Technical Analysis: EUR/USD remains under pressure while key EMAs fall
EUR/USD faced a acute sell-off after breaking below a two-year low of 1.0330 on Thursday. The outlook for the major currency pair is broadly bearish as the 20-week exponential moving average (EMA) at 1.0620 declines.
The 14-week relative strength index (RSI) fell to around 30.00, indicating a forceful downtrend. However, a slight recovery cannot be ruled out as the momentum oscillator has become oversold.
Looking down, the pair may find support near the circular support at 1.0100. On the other hand, the weekly high at 1.0458 will be a key barrier for European bulls.
