EUR/USD Gains Amid ECB Rate Cut Expectations: What’s Next?

Concerns linger among ECB officials regarding inflation potentially falling below target levels amid sluggish economic growth.

Political instability in France, following the ousting of Prime Minister Michel Barnier, adds further uncertainty, while Germany’s economic challenges compound fears of a Eurozone slowdown.

These factors suggest limited upside for the euro against the US dollar in the near term.

Fed Rate Cut Speculation Weakens US Dollar

On the US side, expectations of a Federal Reserve rate cut in its December 18 meeting have weighed on the dollar. The US Dollar Index (DXY) has slipped below the critical 106.00 level. The CME FedWatch tool reveals an 87% probability of a 25-basis-point rate cut to 4.25%-4.50%, up from 62% last week.

The Fed’s dovish sentiment strengthened following November’s Nonfarm Payrolls (NFP) report, which showed job gains exceeding expectations. Looking ahead, Wednesday’s US Consumer Price Index (CPI) release is pivotal, with forecasts indicating a 2.7% rise in headline inflation and steady core inflation at 3.3%.

EUR/USD Technical Outlook

The EUR/USD pair is trading at $1.05475, down 0.18%, with bearish momentum keeping it near its pivot point of $1.05327. The 50-day EMA at $1.05626 reflects mild bearish pressure, limiting upward potential.

• Resistance Levels: $1.05973, $1.06321, $1.06603.

• Support Levels: $1.05071, $1.04720, $1.04347.

• Momentum Indicator: RSI at 41 indicates further downside potential before oversold conditions.

A breakout above $1.05973 could revive bullish sentiment, while a dip below $1.05327 may drive the pair toward $1.04720.