Fundamental Overview
The US Dollar continues to consolidate around the highs although it’s stronger against the commodity currencies. In the bigger picture, the market reached the peak in the repricing of interest rates expectations, and it will need stronger reasons to price out the remaining rate cuts for 2025.
In fact, despite lots of strong US data, the market’s pricing remaining largely unchanged around three rate cuts by the end of 2025. The focus is now on the US CPI report. It looks like the Fed really wants to cut next week before pausing for some months. So, we might need an upside surprise in the core inflation numbers to force them to change plans.
Even if the Fed decides to cut next week despite a hot CPI, the market will likely scale back further the rate cuts expectations for 2025 and that could trigger some risk aversion with the US Dollar rallying across the board. The best scenario would be a soft report given the overstretched long positions in the greenback. In such a case, we can expect the US Dollar to selloff across the board.
On the EUR side, tomorrow the ECB is expected to cut interest rates by 25 bps bringing the policy rate to 3.00%. The market’s pricing has been very aggressive lately due to a series of weaker than expected economic releases, but the majority of ECB’s officials pushed back against a 50 bps cut in December. After this week’s cut, the market sees five more in 2025 which could turn out to be too much if things pick up next year.
EURUSD Technical Analysis – Daily Timeframe
On the daily chart, we can see that EURUSD continues to consolidate between the 1.06
resistance and the 1.05 support. From a risk management perspective, the sellers will have a better risk to reward setup around the
trendline to position for a drop into new lows. The buyers, on the other hand, will want to see a break higher to increase the bullish bets into the 1.09 handle next.
EURUSD Technical Analysis – 4 hour Timeframe
On the 4 hour chart, we can see more clearly the rangebound price action that’s been going on for a few weeks as the market reached the peak in the repricing of rate cuts for the Fed. We have an interesting zone around the 1.0550 level that’s been acting as kind of a barometer with the price above it being more bullish and below it being more bearish. Overall though, we continue to trade in a range and the US CPI report today should finally get us out of it.
EURUSD Technical Analysis – 1 hour Timeframe
On the 1 hour chart, we can see that we have a downward trendline defining the current bearish momentum. The sellers will likely continue to lean on it to position for new lows, while the buyers will look for a break higher to target the major trendline. The red lines define the
average daily range for today.
Upcoming Catalysts
Today we get the US CPI report. Tomorrow, we have the ECB rate decision, the US Jobless Claims and the US PPI.
This article was written by Giuseppe Dellamotta at
www.forexlive.com.
