Daily Price Outlook
During the European trading session, the EUR/USD currency pair managed to halt its downward trend, gaining modest traction at 1.0303 and reaching an intra-day high of 1.0310.
The pair's recent decline can be attributed to investor focus on the upcoming inauguration of US President-elect Donald Trump on Monday.
Moreover, the Euro (EUR) remains under pressure due to a weak economic outlook, compounded by persistent dovish expectations surrounding the European Central Bank (ECB).
Traders are pricing in a 25 basis point rate cut by the ECB at each of its next four policy meetings, fueled by concerns over the Eurozone's economic growth and the subdued price pressures in the region.
EUR/USD Faces Downward Pressure Amid ECB Rate Cut Expectations and US Tariff Concerns
On the EUR front, the shared currency remains under pressure as the outlook for the Euro (EUR) stays weak. This is largely due to growing expectations that the European Central Bank (ECB) will continue with interest rate cuts.
Traders are predicting a 25 basis point rate cut by the ECB at each of its next four meetings, driven by concerns over the Eurozone's economic outlook and subdued price pressures.
On the other hand, the ECB is also showing a readiness for further rate cuts. The minutes from the December ECB meeting, released last Thursday, revealed that officials discussed easing policies more than pausing them.
There was even talk of a larger 50 basis point rate cut to address downside risks to growth, caused by both global and domestic political uncertainties. Ultimately, the ECB opted for a 25 basis point cut, signaling ongoing concerns about economic growth.
Therefore, the growing expectations of continued ECB rate cuts and concerns over the Eurozone's economic outlook, combined with potential US tariff hikes, put significant downward pressure on the EUR/USD currency pair, increasing the likelihood of further declines or even reaching parity.
US Dollar Remains Firm Amid Anticipation of Trump’s Economic Policies and Fed Rate Cut Expectations
On the US front, the broad-based US dollar is moving within Thursday’s trading range as investors keep a close eye on US President-elect Donald Trump’s upcoming inauguration on Monday.
The market is awaiting Trump’s economic policy announcements, which are expected to offer fresh insight into the US economic outlook and potential changes to global trade dynamics.
Many experts believe that Trump’s policies could lead to higher inflation and economic growth but also risk triggering a global trade war.
At a Senate Finance Committee meeting on Wednesday, Trump’s treasury pick, Scott Bessent, stressed the need to reform the current tax system to avoid a massive $4 trillion burden on the middle class.
He warned of an "economic calamity" if the tax system is not renewed and extended. Bessent also voiced support for Trump’s protectionist policies, arguing that they would help address unfair trade practices and give the US greater leverage in global negotiations.
Meanwhile, the US Dollar Index (DXY), which tracks the value of the US dollar against six major currencies, has shown a slight increase, holding key support at 109.00.
The US dollar remains firm, despite traders beginning to price in the possibility of at least one interest rate cut by the Federal Reserve this year.
This shift comes after the core Consumer Price Index (CPI), which excludes food and energy prices, slowed to 3.2% in December, its lowest rate in over four years, fueling expectations of a more dovish Fed stance.
Therefore, the US dollar's strength, driven by expectations of Trump’s policies and a firm US Dollar Index, puts downward pressure on the EUR/USD pair, potentially leading to further declines as traders anticipate Fed rate cuts.
EUR/USD – Technical Analysis
The EUR/USD pair is trading at $1.02866, down 0.09%, as it struggles to recover above the pivot point at $1.03196. The pair remains under pressure amid subdued market sentiment and a stronger U.S. Dollar, signaling potential downside risks.
Immediate resistance is located at $1.03720, with additional barriers at $1.04338 and $1.05131. On the downside, key support is seen at $1.02406, followed by deeper levels at $1.01867 and $1.01288.
The 50-day EMA at $1.02938 aligns closely with the current price action, providing a short-term barrier to any bullish attempts.
The inability to sustain above the pivot point suggests cautious sentiment, while a break below the immediate support at $1.02406 could intensify selling pressure, targeting lower levels.
From a technical perspective, a sustained move above $1.03196 is required to signal a potential bullish reversal, with an upside target of $1.03720.
Conversely, failure to hold above the pivot may lead to a retest of $1.02406, with further declines toward $1.01867 likely if bearish momentum persists.
Market participants should closely monitor the $1.03196 pivot point, as it serves as a crucial decision level for directional movement. While the broader trend remains bearish, a break above resistance could provide relief for the euro.
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