The EUR/USD currency pair is currently trading above 1.0400 with low volumes as investors are enjoying the holidays at the end of 2024. The Euro is expected to end the year with a 5.5% decline against the US Dollar due to dovish guidance from the ECB and concerns about a potential trade war with the US. This week, US investors will be closely watching the US ISM Manufacturing PMI data for December.
The ECB has reduced its Deposit Facility rate by 100 basis points this year and is expected to further lower it to 2% by the end of June 2025. This suggests that the ECB will continue to cut its key borrowing rates in the first half of next year. ECB policymakers have expressed concerns about potential inflation undershooting the central bank’s target of 2% due to political uncertainty in Germany and the possibility of a trade war with the US. There have been differing views among ECB officials on how to handle the US trade situation.
In terms of economic data, investors are waiting for Spain’s Harmonized Index of Consumer Prices (HICP) data for December. The Euro continues to follow the US Dollar’s movements, which has been consolidating near a four-day support level with the US Dollar Index (DXY) hovering around 108.00. Higher Treasury yields have been supporting the US Dollar as investors anticipate economic growth and inflation due to incoming policies under the new US administration.
Technical analysis shows that EUR/USD is currently consolidating above the two-year low of 1.0335 with a bearish outlook. Both the 20-day and 50-day Exponential Moving Averages (EMAs) are declining, and the 14-day Relative Strength Index (RSI) is near 40.00. The pair could potentially decline further towards the round-level support of 1.0200. On the upside, the 20-day EMA near 1.0500 will be a key resistance level for Euro bulls.
The Euro is the currency for 19 European Union countries in the Eurozone and is the second most traded currency in the world behind the US Dollar. The ECB in Frankfurt, Germany, is responsible for setting interest rates and managing monetary policy for the Eurozone. Economic indicators such as inflation data, GDP, and trade balance can impact the value of the Euro. Positive data releases can strengthen the Euro, while weak economic data may lead to a decline in the currency. Investors will closely watch economic data releases and ECB decisions for potential impacts on the Euro in the coming months.
