The EUR/USD pair trades modestly higher around 1.0560 during early European trading on Tuesday. However, the pair’s upside appears constrained as markets increasingly price in additional rate cuts from the European Central Bank (ECB) at its upcoming policy meeting on Thursday.
ECB Policy Outlook in Focus
The ECB is widely expected to announce a 25-basis-point (bps) rate cut, with a less likely but potential 50 bps reduction still on the table. Traders are eyeing ECB President Christine Lagarde’s post-meeting press conference for clues about future monetary policy, including the scope and timeline for additional rate reductions.
Technical Analysis: Limited Upside, Bearish Underpinnings
On the technical front, the EUR/USD pair retains a bearish tone, as it remains capped below the 100-day Exponential Moving Average (EMA). The 14-day Relative Strength Index (RSI), positioned below the midline at 45.20, signals that the broader path of least resistance remains to the downside.
Support Levels:
- Initial support lies at 1.0480, the low of December 3.
- A breach of this level could open the door to the lower Bollinger Band boundary at 1.0445.
- Further declines may target 1.0332, the low from November 22.
Resistance Levels:
- Immediate resistance is near the upper Bollinger Band boundary at 1.0623.
- A sustained push higher could see the pair test the 100-day EMA at 1.0787.
- Beyond that, the psychological 1.0800 mark presents a key barrier.
Market Sentiment and Near-Term Outlook
While the EUR/USD has shown resilience, rising expectations of ECB easing and subdued Eurozone growth prospects may weigh on the pair. Conversely, the Federal Reserve’s anticipated rate cut later this month limits the US Dollar’s (USD) strength, offering some support to the Euro.
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