- EUR/USD finds temporary support near 1.0220; However, more downside seems likely.
- The Fed is expected to cut interest rates twice this year.
- Investors are awaiting the US ISM Manufacturing PMI and German CPI data for December.
The EUR/USD pair finds temporary support in the North American session on Friday after falling to near 1.0220 on Thursday, the lowest level seen in more than two years. Market experts see the major currency pair falling further to the parity level on the Federal Reserve (Fed) and the European Central Bank (ECB) diverging views on monetary policy outlook.
On the left side of the Atlantic, Fed officials have guided for smaller interest rate cuts in 2025, while on the right, ECB policymakers see the policy easing cycle continuing at the current pace.
According to the latest dot plot in the Fed’s Summary of Economic Outlook, Fed officials expect the federal funds rate to head to 3.9% by the end of the year. This indicates that policymakers expect two interest rate cuts this year, compared to four cuts expected in September.
Market participants also trimmed the Fed’s dovish bets. They expect that policies under the administration of President-elect Donald Trump, such as tightening immigration, higher import tariffs, and tax cuts, will boost the growth rate and inflationary pressures in the US economy.
The US Dollar Index (DXY), which tracks the value of the US currency against six major currencies, fell on Friday but remains close to its highest level in two years, above 109.00.
In the future, investors will pay close attention to a large number of economic indicators related to the US labor market, which will influence the Fed interest rate outlook. Right now, the Fed is almost certain to keep interest rates steady in the 4.25%-4.50% range at its January policy meeting.
In Friday’s session, the US dollar will be guided by the US Manufacturing Purchasing Managers’ Index (PMI) data for December, which will be published at 15:00 GMT. The PMI is expected to remain at 48.4, indicating that manufacturing sector activities are contracting at a steady pace.
US dollar price today
The table below shows the percentage change in the US Dollar (USD) against the major currencies listed today. The US dollar was the strongest against the Canadian dollar.
| US dollars | euro | GBP | JPY | Canadian | Australian dollar | New Zealand dollar | Swiss franc | |
|---|---|---|---|---|---|---|---|---|
| US dollars | -0.31% | -0.22% | -0.22% | 0.06% | -0.26% | -0.26% | -0.37% | |
| euro | 0.31% | 0.08% | 0.05% | 0.37% | 0.05% | 0.05% | -0.06% | |
| GBP | 0.22% | -0.08% | 0.00% | 0.29% | -0.04% | -0.03% | -0.14% | |
| JPY | 0.22% | -0.05% | 0.00% | 0.28% | -0.04% | -0.03% | -0.14% | |
| Canadian | -0.06% | -0.37% | -0.29% | -0.28% | -0.33% | -0.32% | -0.43% | |
| Australian dollar | 0.26% | -0.05% | 0.04% | 0.04% | 0.33% | 0.00% | -0.11% | |
| New Zealand dollar | 0.26% | -0.05% | 0.03% | 0.03% | 0.32% | -0.01% | -0.12% | |
| Swiss franc | 0.37% | 0.06% | 0.14% | 0.14% | 0.43% | 0.11% | 0.12% |
The heat map shows the percentage changes in major currencies versus each other. The base currency is chosen from the left column, while the counter currency is chosen from the top row. For example, if you select the US dollar from the left column and move along the horizontal line to the Japanese yen, the percentage change displayed in the box will represent the US dollar (base) / Japanese yen (quote).
Daily Market Movers Summary: EUR/USD is walking a tightrope with focus on the German HICP
- EUR/USD is unlikely to hold immediate support at 1.0220 as traders expect a 113 basis point interest rate cut by the European Central Bank this year. This suggests that there will be at least four interest rate cuts of 25 basis points on the back of worsening euro zone inflation risks below the central bank’s 2% target.
- ECB officials are also comfortable with the market pricing in four interest rate cuts. The central bank’s key interest rates should fall to “about 2%” near “the fall of this year,” European Central Bank Governing Council member and Bank of Greece Governor Yannis Stournaras said on Thursday, in an interview with Sky Radio. This indicates that the ECB will cut the interest rate on its deposit facilities at each of the next four policy meetings.
- Aside from the risk of inflation remaining persistently low, weak economic activity and the potential impact of the trade war with the US on the euro zone’s export sector have also reinforced the ECB’s dovish bets. On Thursday, the December HCOB Manufacturing PMI, compiled by S&P Global, showed that manufacturing sector activity contracted at a slightly faster pace than the initial reading. The manufacturing PMI came in at 45.1, compared to the initial estimate of 45.2.
- From now on, investors will focus on the preliminary data of the combined consumer price index for Germany and the eurozone for December, which will be released on Monday and Tuesday respectively.
Technical Analysis: EUR/USD remains under pressure with major moving averages sloping down
The EUR/USD pair faced a sharp sell-off after falling below a two-year low of 1.0330 on Thursday. The outlook for the major currency pair is broadly bearish as the 20-week Exponential Moving Average (EMA) at 1.0620 is falling.
The 14-week Relative Strength Index (RSI) has fallen to near 30.00, indicating strong downward momentum. However, a slight rebound cannot be ruled out as the momentum indicator has turned into oversold territory.
Looking down, the pair may find support near the full support level at 1.0100. On the contrary, the weekly high at 1.0458 will be the main barrier for Euro bulls.
European Central Bank Frequently Asked Questions
The European Central Bank (ECB) in Frankfurt, Germany, is the reserve bank for the euro area. The European Central Bank sets interest rates and manages monetary policy for the region. The ECB’s primary mandate is to maintain price stability, which means keeping inflation at around 2%. The primary tool for achieving this is raising or lowering interest rates. Relatively high interest rates usually lead to a stronger euro and vice versa. The ECB’s Governing Council makes monetary policy decisions at meetings held eight times a year. Decisions are made by the heads of the eurozone’s national banks and the six permanent members, including the President of the European Central Bank, Christine Lagarde.
In extreme situations, the ECB can activate a policy tool called quantitative easing. Quantitative easing is the process by which the European Central Bank prints euros and uses them to buy assets – usually government or corporate bonds – from banks and other financial institutions. Quantitative easing usually leads to a weaker euro. Quantitative easing is considered a last resort when simply lowering interest rates is unlikely to achieve the goal of price stability. The European Central Bank used it during the great financial crisis of 2009-2011, in 2015 when inflation remained stubbornly low, and also during the coronavirus pandemic.
Quantitative tightening (QT) is the opposite of quantitative easing. It is implemented after quantitative easing when the economic recovery is underway and inflation begins to rise. While in the QE program the European Central Bank (ECB) buys government and corporate bonds from financial institutions to provide them with liquidity, in the QT program the ECB stops buying more bonds, and stops reinvesting the capital owed on the bonds it holds. actually. It is usually positive (or bullish) for the EUR.