EURUSD Bounces off 1.0330-40 Support but Dovish ECB Sellers

EURUSD retested and bounced off the 1.0330-40 support last week, which indicates a stronger correction higher, but the ECB continues to keep the dovish rhetoric, which will likely keep the selling pressure on for the Euro.

EUR/USD dipped below 1.05 following Donald Trump’s U.S. election victory, which drove the USD higher, briefly falling to 1.0330. Buyers stepped in, pushing the pair back up, but the Eurozone’s weak economic outlook and the ECB’s dovish stance kept upward momentum limited. The manufacturing sector continues to struggle, with December output contracting at its fastest pace this year and new orders declining. This marks the steepest downturn in the industrial sector in 55 months, highlighting persistently weak demand and a significant drop in employment levels.

By mid-December, when the 20 SMA (gray) caught up with the price, the bearish trend resumed.  Last Wednesday, the Federal Reserve’s hawkish rate cut, accompanied by Jerome Powell’s concerns about persistent inflation, sent EUR/USD tumbling 1.5 cents lower. However, Friday’s weaker-than-expected PCE report, the Fed’s preferred measure of inflation, contradicted Powell’s comments.

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EUR/USD Chart Daily – MAs Keeping the Pressure to the DownsideChart EURUSD, D1, 2024.12.22 20:42 UTC, MetaQuotes Ltd., MetaTrader 5, Demo

This caused the USD to retreat slightly, helping EUR/USD bounce off a key support zone. Despite these rebounds, EUR/USD buyers remain cautious, as the ECB’s dovish stance continues to weigh on the pair. ECB member Vujčić reinforced this position by stating that the central bank’s direction remains clear, with a focus on further rate reductions.

Key Points from Boris Vujčić’s Interview:

  • Rate Cuts Expected:

    • Confirmed that the European Central Bank (ECB) is set to continue reducing interest rates in 2024.
    • Described the path as a “continuation” of the current direction.
  • Uncertainty on Terminal Rate:

    • The final level of interest rates will depend on economic data.
    • Key factors include:
      • Inflation rate trends and whether they decelerate as projected.
      • The impact of monetary policy transmission on the broader economy.
  • Data-Driven Approach:

    • Emphasized reliance on projections and real-time data to guide future decisions.

EUR/USD Live Chart

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ABOUT THE AUTHOR See More
Skerdian Meta
Lead Analyst
Skerdian Meta Lead Analyst. Skerdian is a professional Forex trader and a market analyst. He has been actively engaged in market analysis for the past 11 years. Before becoming our head analyst, Skerdian served as a trader and market analyst in Saxo Bank's local branch, Aksioner. Skerdian specialized in experimenting with developing models and hands-on trading. Skerdian has a masters degree in finance and investment.
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