Daily Price Outlook
During the early European trading session on Wednesday, the EUR/USD currency pair sustained its upward trend, climbing toward 1.0350. However, the gains may be limited as investors look ahead to the Federal Reserve's stance on interest rates in 2025.
The market is currently adjusting its expectations for a slower pace of rate cuts by the Fed, which could cap the euro's momentum against the US dollar. Traders are closely awaiting the release of the Federal Open Market Committee (FOMC) Minutes later today, which could provide more clarity on the Fed's plans.
On the other side of the Atlantic, the European Central Bank (ECB) is facing its own set of challenges. Despite rising inflation, the market expects the ECB to remain aggressive with rate cuts in 2025.
The anticipation is that the ECB will cut rates by 25 basis points in its upcoming meeting on January 30, and traders are predicting a total of just over 100 basis points of cuts for the year.
This prospect of ECB rate cuts could put some pressure on the Euro (EUR) against the US Dollar (USD), limiting the potential for significant movement in the EUR/USD pair in the short term. The balance between these central bank policies will likely be a key factor influencing the currency pair's future performance.
Euro Faces Pressure from ECB Rate Cut Expectations and Weak German Data
On the EUR front, markets are still expecting aggressive rate cuts from the European Central Bank (ECB) in 2025, even though inflation continues to rise. This could create selling pressure on the Euro (EUR) against the US Dollar (USD).
The ECB is anticipated to cut rates by 25 basis points (bps) in their next meeting on January 30. For the rest of the year, traders expect a total of over 100 bps in rate cuts, which could weaken the Euro further and limit its potential for gains against the USD.
Moving ahead, traders will be looking closely at key economic data from Germany and the Eurozone. German Retail Sales, along with Eurozone Consumer Confidence and the Producer Price Index (PPI), will be in focus.
If these reports come in stronger than expected, it could provide some support for the Euro. Positive results could lift the shared currency and potentially boost the EUR/USD pair.
However, the outlook isn't all positive for the Euro. Recent data from Germany showed a sharp decline in Factory Orders for November, with contracts for goods “Made in Germany” falling by 5.4%, following a 1.5% drop in October.
This unexpected slump suggests that Germany’s manufacturing sector continues to struggle, which is concerning for the Eurozone's economic recovery.
The weaker-than-expected data could add pressure on the Euro, making it harder for the EUR/USD pair to sustain its upward movement.
EUR/USD – Technical Analysis
EUR/USD is trading at $1.3539, up 0.14% for the day, maintaining a steady trajectory around its pivot point of $1.03731.
The 4-hour chart highlights immediate resistance at $1.04424, with subsequent levels at $1.05287 and $1.06035, reflecting potential targets if the pair gains momentum.
Immediate support lies at $1.02884, with additional key levels at $1.02240 and $1.01664, which serve as critical zones for bearish activity.
The RSI at 48 indicates neutral momentum, reflecting a balanced market sentiment. The 50 EMA, currently at $1.03718, aligns closely with the pivot point, signaling its importance as a dynamic support-resistance zone.
A break below $1.03725 could trigger selling pressure, targeting support at $1.02850. On the other hand, a sustained move above $1.04424 may pave the way for bullish moves toward higher resistance levels.
Traders are advised to consider short positions below $1.03725, with a take-profit target at $1.02850 and a stop-loss at $1.04208.
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