The EUR/USD pair is trading within a three-day range, influenced by expectations of divergent monetary policies from the ECB and the Fed. While the ECB is anticipated to adopt a dovish stance and lower borrowing costs, the Fed is expected to pause its rate-cutting cycle due to rising inflation expectations. The market awaits the final Eurozone CPI print and US economic data for further direction.
The EUR/USD pair is currently experiencing a period of consolidation after a three-day range, influenced by some USD buying. Divergent expectations regarding monetary policy between the European Central Bank ( ECB ) and the Fed eral Reserve ( Fed ) continue to pose a challenge for the major currency pair. Traders are now awaiting the final Eurozone Consumer Price Index ( CPI ) release before focusing on US economic data.
The shared currency is facing downward pressure due to anticipation that the ECB will adopt a more dovish stance and reduce borrowing costs multiple times in 2025. This perspective was reinforced by the accounts from the December 11-12 ECB meeting, which indicated a likelihood of further policy easing amidst weakening inflationary pressures. Furthermore, ECB Governing Council member Yannis Stournaras stated earlier on Friday that policy should continue with a series of rate cuts at upcoming meetings.Adding to the Euro's woes, a rise in German core annual inflation has fueled concerns about stagflation in the Eurozone's largest economy. This potential scenario could worsen if trade tensions escalate, further dampening sentiment surrounding the Euro. Simultaneously, a resurgence of US Dollar (USD) buying, after a dip earlier in the week, exerts additional downward pressure on the EUR/USD pair. Investors seem convinced that the Fed will pause its rate-cutting cycle, driven by speculation that incoming US President Donald Trump's policies will stimulate inflation. This bolsters the USD and helps it recover from its recent decline, which had taken it to a level over two years high. Meanwhile, the US Producer Price Index (PPI) and Consumer Price Index (CPI) released this week hinted at easing inflation, suggesting the Fed might not entirely rule out the possibility of rate cuts by year-end. This development has contributed to the sharp decline in US Treasury bond yields recently, which could potentially limit aggressive USD buying and provide some support for the EUR/USD pair. The market is now awaiting the final Eurozone CPI print before turning its attention to US housing market data and Industrial Production figures later during the North American session. Despite the current weakness, the EUR/USD remains poised to close in the green for the first time in seven weeks.From a technical perspective, the weekly high around 1.0355 is likely to be the first resistance level. A break above this level could propel the EUR/USD higher towards 1.0400 and eventually 1.0435, which coincides with the monthly peak reached last week. Sustained strength beyond this level could indicate a near-term bottom for the pair and pave the way for a more significant recovery. On the downside, weakness below the 100-hour Simple Moving Average (SMA) around 1.0275 could lead to a drop towards the 1.0245-1.0240 region, where some support might be found. Further selling pressure could then push the EUR/USD to 1.0200 and potentially expose the two-year low around 1.0180-1.0175 reached on Monday. Failure to hold these support levels could intensify the downtrend and expose the pair to a decline towards 1.0100
EUR/USD ECB Fed Monetary Policy Inflation CPI Technical Outlook
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