The EUR/USD pair climbed to a fresh weekly high near 1.0580 during the European session on Friday, as investors awaited the release of the Eurozone Harmonized Index of Consumer Prices (HICP) data for November. The report, scheduled for 10:00 GMT, is expected to show an annual rise in headline inflation to 2.3% and core inflation, which excludes food and energy, to 2.8%.
Inflation Data to Shape ECB Policy Outlook
Market participants are closely watching the inflation data for hints on the European Central Bank’s (ECB) potential rate cut in December. The ECB has already lowered its Deposit Facility Rate by 75 basis points (bps) this year, bringing it to 3.25%. Current market expectations lean towards a 25 bps cut in December, with projections of further cuts throughout 2025, potentially reducing the rate to 1.75% by year-end.
There is growing speculation that the ECB could opt for a larger 50 bps cut as concerns over economic risks mount. Both Germany and France, the Eurozone’s largest economies, face economic stagnation and political uncertainty, which have hampered government spending. Weak German retail sales data released earlier highlighted the economic challenges; retail sales in October contracted by 1.5% month-on-month, significantly worse than the expected 0.3% decline.
Diverging Signals from ECB Officials
ECB Governing Council member François Villeroy de Galhau hinted at the possibility of an outsized rate cut, emphasizing the need for flexibility. “There is every reason to cut on December 12. Optionality should remain open on the size of the cut, depending on incoming data, economic projections, and our risk assessment,” Villeroy stated on Thursday.
U.S. Dollar Retreat Bolsters EUR/USD
The EUR/USD gains have been supported by the US Dollar’s (USD) ongoing decline during a holiday-shortened week. The Dollar Index (DXY), which measures the USD against a basket of six major currencies, has slipped below 106.00. Optimism around President-elect Donald Trump’s Treasury Secretary nominee, Scott Bessent, has tempered market concerns. Bessent’s promise to gradually implement tariffs while reducing fiscal deficits has reassured financial markets.
On the U.S. monetary policy front, the Federal Reserve (Fed) remains cautious amid an uptick in inflationary pressures, as indicated by October’s Core Personal Consumption Expenditures (PCE) Price Index. Market sentiment suggests a 66% probability of a 25 bps rate cut in December, according to the CME FedWatch tool.
Technical Analysis: EUR/USD Eyeing 1.0600 Resistance
The EUR/USD recovery has pushed the pair towards 1.0600, near its 20-day Exponential Moving Average (EMA). However, broader trends remain bearish, with all short-to-long-term EMAs pointing downward. The 14-day Relative Strength Index (RSI) has rebounded from oversold conditions but remains below neutral levels, indicating that bearish momentum has eased but not disappeared.
Key support is seen at the November 22 low of 1.0330, while resistance lies at the 50-day EMA near 1.0747. Traders will closely monitor upcoming U.S. employment and economic data next week for further direction.
Related Topics:
