The EUR/USD currency pair has shown resilience during the European trading session on Monday, recovering from previous losses and hovering around 1.1750, approaching the recent high of 1.1762 achieved last week. This upward movement has been largely attributed to a surprisingly robust report on Eurozone’s Industrial Production, which has bolstered market sentiment ahead of several critical macroeconomic indicators scheduled for release later in the week.
Data from Eurostat revealed that factory output in the Eurozone grew by 0.8% in November, a significant increase from the modest 0.2% growth in October and well above expectations of just 0.1%. Year-on-year, industrial production increased by 2%, up from the 1.2% growth recorded in October. Such performance indicates a strengthening manufacturing sector in the region, contributing positively to the Euro’s performance against other currencies.
The EUR/USD pair has been gaining momentum, rallying nearly 2% over the past three weeks, primarily fueled by investor expectations surrounding dovish monetary policy shifts from the US Federal Reserve. Market participants are anticipating at least one rate cut from the Fed by 2026 and leaning towards the possibility of a change in leadership at the Fed, with former Governor Kevin Warsh being considered as a suitable successor to Chairman Jerome Powell. These factors have curtailed any significant upward attempts by the US dollar.
Despite the recent rally, traders are advised to remain cautious, as they prepare for key economic data releases later this week. Notably, the delayed Nonfarm Payrolls (NFP) reports for October and November will be issued on Tuesday, followed by November’s Consumer Price Index (CPI) results on Thursday, coinciding with the European Central Bank’s monetary policy decisions.
Within the currency market, the Euro has performed strongest against the New Zealand Dollar, while it has seen mixed results against other major currencies. A heat map detailing percentage changes highlights the Euro’s strength relative to currencies like the British Pound and the Canadian Dollar, while showing slight weaknesses against the US Dollar and Australian Dollar.
The disparity in monetary policy between the European Central Bank (ECB) and the Fed continues to support the Euro. While the Fed is anticipated to make rate cuts, the ECB has hinted at potential rate hikes, creating a favorable environment for the Euro.
In parallel, data from China on Monday indicated a slowdown in industrial production, alongside the weakest retail consumption growth in nearly two years. This has escalated concerns about the economic health of China, the world’s second-largest economy, further influencing investor sentiment during the Asian trading session. Compounding these worries, China Vanke, a major state-backed property developer, is reportedly struggling to avoid bankruptcy, reigniting fears regarding the stability of the Chinese property sector.
In the US, the NY Empire State Manufacturing Index is projected to decline to 10.6 for December, down from 18.7 the previous month. Following this release, remarks from Fed Governor Stephen Miran and New York Fed President John Williams may provide insights into the Fed’s forthcoming monetary policy direction.
Technical analysis of the EUR/USD shows it trading within a narrow range, just below the highs recorded last week. The 4-Hour Relative Strength Index (RSI) indicates a decline from overbought conditions while remaining consistent with a bullish trend. However, the Moving Average Convergence Divergence (MACD) suggests a possible bearish signal ahead. Key support levels are identified at 1.1720, 1.1680, and 1.1615. Conversely, significant resistance challenges are anticipated at 1.1762 and potentially up to 1.1780, with a broader upper target near 1.1820.
As central banks navigate the precarious balance of maintaining economic stability, the importance of their monetary policy decisions continues to weigh heavily on currency markets and investor strategies.
