Euro Climbs as Fed Signals Dovish Turn, Markets Eye ECB Meeting

The EUR/USD pair has been on an upward climb since Monday, fueled by dovish expectations set by the Federal Reserve’s recent Interest Rate Decision. The Fed, meeting market forecasts, left rates steady at 5.5% this Tuesday. During the Asian trading hours on Thursday, EUR/USD was seen trading at approximately 1.0910.

A significant dovish tilt was observed in the Fed’s “dot plot,” with Interest Rate Projections for 2024 suggesting a 50-basis-point decrease from earlier estimates of 5.1% down to 4.6%. This projection adjustment hints at a future shift towards more accommodative monetary policy.

The US Dollar Index (DXY) has been in decline amid falling US bond yields, currently trading near 102.60. Concurrently, the 2-year and 10-year US Treasury yields have decreased to 4.34% and 3.97%, respectively.

US economic outlook is challenged by the latest Producer Price Index (PPI) figures for November, which show a deceleration in growth to 0.9%, below the forecasted 1.0%. Core PPI also fell short of expectations at 2.0%, compared to the anticipated 2.2%. Market participants now turn their attention to the imminent US Retail Sales report.

In Europe, Eurostat reported a 0.7% monthly decline in the Industrial Production index, a steeper drop than the 0.3% predicted.

The European Central Bank’s policy meeting, slated for Thursday, is widely expected to leave rates unchanged. However, investors are closely monitoring for any forward-looking statements from the ECB, especially concerning the timing of potential rate reductions.

EUR/USD’s technical perspective suggests a continued bullish trend, following a strong rally that breached the 1.0860 level. The currency pair’s advance, supported by the completion of a positive pattern, is expected to challenge the 1.0960 resistance.

A bullish outlook is maintained for today, with a trading range projected between 1.0850 support and 1.1000 resistance, although a break below 1.0860 could reverse the uptrend, introducing short-term bearish pressures.

EUR/USD Live Chart