EUR/USD drops 0.7% even as eurozone shows positive data
Eurozone's steady inflation and surplus boost euro's outlook against dollar
EUR/USD price is grappling with contrasting forces as market participants assess the latest updates from the Eurozone data, ECB officials, and developments from the U.S.
Beginning from the Eurozone, today’s data showed that inflation is steady at 2.0% year-over-year, exactly as it was forecasted. Although this aligns with the European Central Bank’s target, it’s not sparking much market reaction. Adding to this, a surprising boost also came from the Eurozone current account figures. The Eurozone posted a €37 billion surplus, beating expectations of €27 billion and improving on last month’s €35.4 billion. This surplus suggests solid foreign demand for euro-denominated assets, which is positive for the currency’s long-term outlook. Despite encouraging inflation data and a stronger trade balance, EUR/USD has slipped 0.7% from the 1.0600 resistance, erasing all of Monday's gains.
RSI aligns with rate cut expectations to fuel EUR/USD rally
Meanwhile, some European Central Bank officials have been weighing up policy adjustments. Fabio Panetta remarked that the central bank is still far from reaching a neutral interest rate. He warned that weak domestic demand could push inflation well below 2%, signaling the possibility of more expansionary policies ahead. On the flip side, Joachim Nagel raised concerns about global supply chain fragmentation potentially fueling inflation, suggesting that the hawkish view hasn’t faded completely.
On the U.S. front, expectations for rate cuts by the Federal Reserve are influencing EUR/USD price movement. Markets are currently pricing in a 10-basis-point Fed cut for December, in contrast to the ECB which is expected to deliver cuts of around 31 basis points. Analysts suggest that if the Fed opts for a more aggressive 25-basis-point cut and the ECB keeps pace, the euro could find some support.
Technical indicators also suggest a potential rebound. The RSI signals oversold conditions, and a swing divergence between price action and the relative strength index points to a possible floor at 1.0500. If this level holds, EUR/USD could find support for a recovery in the near term.
The EUR/USD has had a challenging November, recording its sharpest monthly decline of 2024. Fragile eurozone growth and persistent inflation dims EUR/USD outlook.
