EUR/USD price recovers as Fed slows rate cuts and ECB focuses on disinflation
EUR/USD rebounds over 1% as usd weakens on lower-than-expected US core inflation
EUR/USD price has experienced a significant shift after recent developments in the Eurozone and the United States economic data outlook . Last week, the fiber continued its broader downtrend, approaching a fresh multi-year low of 1.0340, last seen in November.
However, a sharp recovery followed, with the pair gaining more than 1%, nearing the 1.0460 resistance level. This resurgence came amid a decline in the US Dollar, driven by the latest Personal Consumption Expenditures (PCE) data out of the United States.
EUR/USD price dynamics (November-December 2024). Source: TradingView.
The November PCE report showed that core inflation, the Federal Reserve’s preferred measure, rose by 2.8% year-over-year, slightly lower than the 2.9% market expectations. On a monthly basis, core inflation grew by 0.1%, falling short of the 0.2% forecast. This moderated inflation suggests that the Fed may adopt a slower pace of rate cuts in 2025, with markets pricing in a greater than 90% probability that the Fed will keep interest rates unchanged in January, maintaining the 4.25%-4.50% range. This outlook has played a key role in weakening the US Dollar, thereby allowing EUR/USD to regain some of its lost ground.
Meanwhile, the European Central Bank (ECB) has shown confidence in the Eurozone’s disinflationary progress. ECB President Christine Lagarde remarked that the bank is nearing the point where it could declare success in sustainably bringing inflation to its medium-term 2% target. This stance has supported expectations that the ECB will continue to act, with an additional 100 basis point rate cut anticipated next year in response to deeper economic risks in the Eurozone.
Technical resistance and upcoming data to shape EUR/USD price outlook
From a technical perspective, EUR/USD is currently trading near the 1.0420 mark, just below the critical resistance zone of 1.0460. This level, which had acted as support in previous weeks, is reinforced by the 50-day exponential moving average (EMA) and a bearish trendline on the 4-hour chart. Additionally, the Relative Strength Index (RSI) has recovered from oversold conditions, moving closer to the neutral 50 level, indicating a shift in momentum.
Looking ahead, the key question is whether EUR/USD can break through the 1.0460 resistance and maintain its recovery. Given the recent price move, traders should focus on further developments in US inflation data, the Fed’s policy stance, and any additional commentary from the ECB as these factors will significantly shape the pair’s future price action.
EUR/USD was pressured by diverging monetary policies from the ECB and the Fed. The pair tested the 1.0340 support level after the Fed's 25-bps rate cut on Friday.
