The EUR/USD currency pair experienced slight losses, trading at 1.1730 after retreating from its peak of 1.1762, which was the highest point in over two months, reached just the day before. The current situation reflects a growing divide in monetary policy between the European Central Bank (ECB) and the US Federal Reserve (Fed), with this divergence providing support for the Euro. Over the past three weeks, the pair has seen a nearly 2% rally.
This week, the Fed announced a rate cut and indicated the potential for another reduction in rates as far out as 2026. Market participants anticipate that the Fed will implement at least two additional cuts, spurred by expectations that Chairman Jerome Powell may be succeeded by the dovish Kevin Hassett, the White House economic adviser known for advocating lower borrowing costs.
On the economic data front, Germany’s consumer inflation figures revealed that price pressures had intensified in November, with the Harmonized Index of Consumer Prices (HICP) rising to 2.6% year-over-year, up from 2.3% the previous month. However, month-over-month inflation showed a contraction of 0.5%. These results reconfirm earlier estimates and had a minimal immediate effect on the Euro’s value.
Meanwhile, US jobless claims data released on Thursday indicated a significant uptick, with first-time applications for unemployment benefits rising by 44,000 to a total of 236,000 in the first week of December. This marked the largest increase in more than four years, reinforcing the belief that the Fed may need to cut rates further to support the weakening labor market.
Attention now turns to several members of the Fed who will be speaking during American trading hours. This includes notable figures such as Philadelphia Fed President Anna Paulson and Chicago Fed President Austan Goolsbee, among others, who may provide insights into the Fed’s future monetary policy direction.
From a technical perspective, while the EUR/USD remains in a bullish phase, momentum indicators suggest that the rally could be losing momentum. The 4-Hour Relative Strength Index (RSI) is drifting down from the 70 level, and the Moving Average Convergence Divergence (MACD) indicator is flattening out. This suggests that the upward trend could be growing overstretched. Nevertheless, any downward movements are expected to remain supported above the October 17 high at about 1.1730.
The path forward includes focusing on Thursday’s high of 1.1762 and the October 1 high near 1.1780, both of which could pose challenges for bullish traders. Further resistance may emerge at the September highs around 1.1820.
The Euro continues to gain traction against a backdrop of a weakening US Dollar, with the USD Index trading near two-month lows around 98.00. This decline is largely attributed to ongoing expectations for further Fed rate cuts while most major global central banks appear to be nearing the end of their easing cycles.
To add context, the Euro stands as the currency for 20 European Union nations within the Eurozone and is the second most traded currency globally after the US Dollar. In 2022, it accounted for 31% of all foreign exchange transactions, averaging more than $2.2 trillion in daily turnover. As the most frequently traded currency pair, EUR/USD represents a significant portion of global foreign exchange activity.
Monitoring key economic indicators, such as GDP, manufacturing outputs, and the trade balance, will be crucial for assessing the Euro’s future trajectory. Strong data typically bolster the Euro’s attractiveness to investors, while weak figures might put downward pressure on the currency. The harmonization of these factors will be pivotal as traders navigate the evolving landscape of both the US and Eurozone economies.
