The EUR/USD pair traded quietly around 1.0440 during Monday’s European session, reflecting a limited range as markets remain subdued due to thin trading volumes amid the holiday-shortened week. With Christmas Eve and Boxing Day ahead, market activity is expected to remain light, contributing to the pair’s muted movement.
The US Dollar (USD) steadied on Monday after a significant sell-off on Friday, triggered by weaker-than-expected growth in the US Personal Consumption Expenditure (PCE) Price Index. The US Dollar Index (DXY), which tracks the dollar’s value against six major currencies, hovered below the 108.00 mark.
Core PCE inflation, the Federal Reserve’s (Fed) preferred inflation gauge, increased by 2.8%, slightly below the anticipated 2.9%. On a month-to-month basis, both headline and core PCE inflation grew by a marginal 0.1%, leading to speculation about the Fed’s potential path in 2025, with some expecting fewer rate cuts.
Cleveland Fed President Beth Hammack, who voted for holding rates steady during last week’s policy meeting, emphasized the need for further evidence of inflation returning to the Fed’s 2% target. Meanwhile, Chicago Fed President Austan Goolsbee indicated that uncertainties surrounding President-elect Donald Trump’s policies have led to a more cautious projection for future rate cuts in 2025, lowering his previous expectations of a 100 basis point reduction.
With a light economic calendar on Monday, investors are focused on Tuesday’s US Durable Goods Orders data for November, where a 0.4% decline is expected following a 0.3% increase in October.
EUR/USD Outlook: Mixed Signals Amid ECB’s Rate Strategy
The EUR/USD pair continues to hold onto its recovery from a four-week low of 1.0350, trading near 1.0440. This rebound follows the Euro’s recent outperformance, although market sentiment remains cautious. The European Central Bank (ECB) is expected to continue cutting interest rates to tackle Eurozone economic risks, with a 100-basis point reduction expected next year after a similar cut in 2023.
ECB President Christine Lagarde expressed confidence in the progress towards disinflation, stating that the bank is close to sustainably bringing inflation back to its 2% target. Despite this, the ECB remains committed to further rate reductions until reaching what is considered a neutral rate of 2%.
Technical Outlook: Bearish Bias Remains for EUR/USD
From a technical perspective, the EUR/USD pair is holding the key support at 1.0350, but the outlook remains strongly bearish. All short- to long-term Exponential Moving Averages (EMAs) are declining, and the 14-day Relative Strength Index (RSI) has rebounded to near 40. If the RSI fails to maintain above this level, further downside momentum could be triggered.
On the downside, a break below the two-year low of 1.0330 could see the pair testing the psychological 1.0200 support level. On the upside, the 20-day EMA near 1.0500 remains a key resistance level for any potential recovery.
Related topics:
