EUR/USD Navigates Volatility: ECB and Fed Decisions in Focus

The EUR/USD pair shows signs of recovery, bouncing back from a three-week nadir of 1.0723, with trading levels rising to around 1.0760 during Monday’s Asian session. This uptick follows the U.S. Dollar’s gain, fueled by robust U.S. economic data releases.

Significantly, U.S. Nonfarm Payrolls for November outperformed expectations, climbing to 199,000, while the U.S. Unemployment Rate fell to 3.7%, down from 3.9%. In Europe, Germany’s Harmonized Index of Consumer Prices (YoY) for November held steady at 2.3%, matching forecasts, with monthly data mirroring October’s 0.7% decline.

Market forecasts indicate the European Central Bank (ECB) is likely to maintain its Main Refinancing Operations Rate at 4.5% in its forthcoming policy announcement on Thursday. Additionally, there’s a growing anticipation that the ECB might initiate rate cuts as early as March 2024.

Conversely, speculation abounds regarding the U.S. Federal Reserve’s (Fed) future rate trajectory and the duration of its restrictive policy stance. The prevailing expectation is for the Fed to maintain interest rates at 5.5% in its upcoming policy meeting on Wednesday.

The U.S. Dollar Index (DXY) remains robust above the 104.00 mark, underpinned by favorable U.S. Treasury yields. Currently, the yields for 2-year and 10-year U.S. bonds are at 4.24% and 4.73%, respectively.

Investors are poised to closely watch the upcoming U.S. Consumer Price Index (CPI) data on Tuesday for its potential influence on the market. In addition, Germany’s ZEW Survey – Economic Sentiment for December will provide further market insights.

EUR/USD Technical Outlook

The EUR/USD pair continues to hover around the 1.0760 level, still seeking directional clarity. The market awaits either a decisive break below this support level or a breach above the 1.0860 resistance to determine its next trajectory.

Amidst contradictory technical indicators, a stance of neutrality is maintained. A breach below the support level could lead to losses targeting the 1.0645 area, while surpassing the resistance could renew the bullish correction, potentially steering the pair towards 1.0960.

Today’s expected trading range lies between 1.0680 support and 1.0860 resistance, with the market trend remaining neutral.

EUR/USD Live Chart