• EUR/USD maintains key resistance at 1.0300 after rebounding from the over two-year low of 1.0175, with US CPI data for December in focus.
• The US dollar is under pressure after lower than expected US PPI data for December.
• Holzmann from the ECB expects that the path to a neutral interest rate will not be effortless.

After a robust rebound on Tuesday during the Wednesday European session, the EUR/USD rate remains stable near 1.0300. The major currency pair is consolidating ahead of December US Consumer Price Index (CPI) data, due at 1:30 p.m. GMT. Investors will be paying close attention to U.S. inflation as it will influence market speculation about the Federal Reserve’s (Fed) monetary policy outlook.

It is estimated that headline inflation will continue to raise by 0.3% on a monthly basis. Over the same period, core CPI – which excludes variable food and energy items – is expected to rise by 0.2%, slower than the previous release of 0.3%. Economists expect the annual headline CPI to accelerate to 2.9% from 2.7% in November, with the core reading continuing to rise by 3.3%.

Signs of continued price pressure could accelerate expectations that the Fed will not cut interest rates this year. Although some slowing in inflation pressures is unlikely to reinforce the Fed’s dovish outlook, as investors expect recent policies under Trump such as immigration controls, tax cuts and tariff increases to drive growth momentum.

Ahead of the US inflation data, the US Dollar Index (DXY), which tracks the dollar’s value against six major currencies, falls to almost 109.00. The US dollar (USD) suffered a edged correction on Tuesday after the release of US Producer Price Index (PPI) data for December showed that producer inflation was rising at a slower than expected pace.

According to CME’s FedWatch tool, investors expect the Fed to cut interest rates just once this year, compared to the two rate cuts predicted by Fed officials in December’s Summary of Economic Projections (SEP). Traders are abandoning their dovish stance after the publication on Friday of surprisingly sanguine non-farm payrolls (NFP) data in the US for December.

Daily market update: EUR/USD holds steady despite feeble euro performance

• EUR/USD maintains gains near 1.0300 at the expense of the US dollar. The euro (EUR) performed poorly against its major currencies on Wednesday as investors remain cautious ahead of President-elect Donald Trump’s return to the White House. Higher import tariffs imposed by the Trump administration are expected to weaken euro zone exports, making them more pricey for U.S. importers.
• Growing concerns about economic growth in the euro area and price pressures remaining broadly under control have increased expectations for further interest rate cuts from the European Central Bank (ECB) this year. The ECB cut the deposit rate by 100 basis points (bps) in 2024 and is expected to cut the interest rate again by a full percentage point to reach 2% by mid-summer.
• During Wednesday’s European session, ECB policymaker and Governor of the Bank of France François Villeroy de Galhau said: “It makes sense for interest rates to reach 2% by the summer” because we have virtually won the “fight against inflation.” Villeroy warned of a deepening “risk of deterioration of economic growth prospects in France”, but he did not expect a “recession” to occur in the near future.
• While many ECB policymakers agree with market expectations that the ECB will cut interest rates by 25 basis points at each of its next four policy meetings, ECB policymaker and Austrian central bank governor Robert Holzmann expects the path to lower interest rates will not be as “simple” as it sounds.” Holzmann added that core inflation is currently “closer to 3% than 2%” and highlighted some energy-related challenges that could impact ECB decisions.

Technical analysis: EUR/USD bounces near 1.0300 from two-year low of 1.0170

EUR/USD is rebounding to the area of ​​1.0300 after strengthening from the over two-year low of 1.0175 reached on Monday. The major currency pair is rebounding from divergences in momentum and price action. The 14-day relative strength index (RSI) formed a higher low near 35.00, while the pair made lower lows.

However, the outlook for the common currency pair remains bearish as all short- and long-term exponential moving averages (EMAs) are falling.

Looking down, Monday’s low at 1.0175 will be a key support zone for this pair. Conversely, the key barrier for euro zone bulls will be the January 6 high of 1.0437.