EUR/USD Grinding Higher, Above 1.11, Indicating Bullish Action Early in 2024
Yesterday, EUR/USD reached its highest level since July, pushing above the 1.1000 mark as market activity picked up again during the holiday season, after having broken above 1.10 last week. Buyers didn’t encounter any resistance at all until the end of the US session, suggesting that this pair will start next year in a bullish manner.
However, considering that we’re in the holiday period and the liquidity is low, it’s difficult to announce a breakout yet, but yesterday’s price activity is difficult to dismiss. The US dollar is soft across the board, Treasury yields are lower, and the Euro gained another 90 pips to break through 1.1100 for the first time since July.
The FED and Jerome Powell made it obvious at the last meeting two weeks ago that rate cuts are on the way, diminishing hopes for a higher-for-longer scenario for USD bulls. The inflation numbers have been falling short continuously, supporting expectations for extended Federal Reserve rate cuts in 2024, with the market anticipating roughly 160 basis points (bps) of rate cuts next year.
The November Core Personal Consumption Expenditure (PCE) Price Index in the United States showed a lower-than-expected annual growth of 3.2%, falling short of the anticipated 3.3% and October’s year-over-year number of 3.4% (revised down from 3.5%). This weaker inflation indicator is feeding market speculation about the Federal Reserve reducing interest rates faster than previously thought, with the FED dot plot showing a 75 bps rate cut scenario.
Taking into account the performance of the US and Eurozone economies though, the ECB will likely end up reducing rates than the FED, but the ECB cuts should be back-loaded, so it will weigh on the Euro in the second half of 2024. At the same time, the USD is in the middle of a selling period, while the Euro has been continually discounted, so 1.20 may be achievable, especially if the winter is mild in Europe again, as it is looking like so far apart from the early December flash freeze.
EUR/USD Live Chart
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