EUR/USD price faces downward pressure amid diverging Fed and ECB policies
Technical indicators also highlight bearish sentiment in the short term
The EUR/USD price faces ongoing pressure as it begins December on a bearish note. After experiencing its steepest monthly decline since September 2022, the euro has shown signs of recovery but remains vulnerable to further losses.
The recent slide in EUR/USD has been largely driven by a firmer US Dollar, which continues to benefit from the US Federal Reserve’s guarded stance. While the Fed’s Jerome Powell recently emphasized the resilience of the economy, markets are now pricing in a near 65% probability of a quarter-point rate cut in December.
This cautious outlook from the Fed contrasts with the European Central Bank’s (ECB) own dovish expectations, as inflation in the Eurozone has surpassed the ECB's 2% target, with the Harmonized Index of Consumer Prices (HICP) rising to 2.3% YoY in November. However, market participants have largely priced in a 25 basis points rate cut from the ECB in December, keeping pressure on the euro.
Technical indicators point to bearish outlook for EUR/USD
Technical indicators also highlight bearish sentiment in the short term. EUR/USD is trading below its 100 EMA, and the RSI is firmly under the 50 mark, suggesting that downward momentum could persist. The 1.0500 support zone has proven to be a key level for the pair, but if it breaks, further declines could be in store. The psychological level of 1.0600 is acting as a near-term resistance barrier, hence any upside move will likely face difficulty breaching this level.
EUR/USD price dynamics (September-December 2024). Source: TradingView.
Looking ahead, the speech by ECB President Christine Lagarde and the release of the US ISM Manufacturing PMI later today could provide crucial insights into the economic outlooks for both regions. If the data points to continued weakness in the Eurozone and strength in the US economy, the bearish trend in EUR/USD may extend further, possibly testing deeper support levels.
EUR/USD price reached a seven-day high at the 1.0600 psychological level. However, 5Y5Y inflation and France's fiscal struggle stall EUR/USD outlook.
