Christian Borjon Valencia
FXStreet
- EUR/USD dips towards 1.0550, distancing from 1.0600.
- ECB likely to cut rates by 25 bps in December; markets expect 100 bps in 2025 amid economic struggles.
- Fed stance remains cautious, yet markets await a rate cut in December.
EUR/USD retreated from weekly highs of 1.0600 on Thursday due to thin liquidity conditions as US markets remain closed for Thanksgiving. The pair edges down 0.10% as traders digested data from the Eurozone (EU).
Dovish ECB comments weigh on EUR/USD; diverging policy favors downside
The EUR/USD fall is mainly driven by Germany’s November inflation figures, which, despite improving, continued to paint a deflationary scenario. The Harmonized Index of Consumer Prices (HICP) improved from -1.58% to -0.7% MoM, as expected by analysts. On an annual basis, the HICP missed 2.6%, rose by 2.4%, and exceeded October’s -1.47% contraction.
Although Bundesbank President and ECB board member Joachim Nagel did not comment on the data, his counterpart at the Bank of France, Francois Villeroy, crossed the wires and was more dovish than expected. He suggests that the ECB should include negative rates in its toolkit as “victory against inflation is in sight.”
Regarding monetary policy, Federal Reserve officials remained muted during the week. However, Fed officials had adopted a more gradual stance on monetary policy. In his last appearance in the media, Fed Chair Powell said they’re in no rush to cut rates. Michelle Bowman echoed some of his words, commenting that patience is required before making further monetary policy adjustments.
Money market futures had priced in that the ECB would cut rates by 25 bps at the December meeting, suggesting that the bank's Deposit Facility rate would be 3%. Into the next year, investors estimate 100 bps of easing in the first half of 2025.
In the US, market players had priced in a 65% chance of a 25 bps of easing, leaving the fed funds rate at 4.25%-4.50% range. For the next year, futures traders expect just one rate cut in the first semester.
Going forward, if the EU sees further economic deterioration, coupled with good inflation readings, the ECB could be forced to ease policy more aggressively. Conversely, the robustness of the US economy and a possible expansionary fiscal policy by the upcoming Trump administration could prevent the Fed from easing policy due to inflationary pressures.
Hence, further EUR/USD downside is expected based on central bank policy divergence.
Looking ahead, the EU will feature the release of inflation figures on Friday, alongside Germany’s jobs report. In the US, the calendar is absent, yet next week would be busy with the S&P Global and ISM Manufacturing PMI, Fed speakers, jobs data, and next Friday’s Nonfarm Payrolls.
EUR/USD Price Analysis: Technical outlook
If the EUR/USD climbs sustainably above 1.0600, buyers must reclaim the November 6 swing high of 1.0609 if they want to remain hopeful for higher prices. Once cleared, this would pave the way to test 1.0682, the latest swing low reached on November 6.
Conversely, if sellers stepped in and pushed the EUR/USD below 1.0500, the path would be empty to challenge the November 26 daily low of 1.0424 before launching an attack to the year-to-date (YTD) low of 1.0331.
Euro FAQs
The Euro is the currency for the 19 European Union countries that belong to the Eurozone. It is the second most heavily traded currency in the world behind the US Dollar. In 2022, it accounted for 31% of all foreign exchange transactions, with an average daily turnover of over $2.2 trillion a day. EUR/USD is the most heavily traded currency pair in the world, accounting for an estimated 30% off all transactions, followed by EUR/JPY (4%), EUR/GBP (3%) and EUR/AUD (2%).
The European Central Bank (ECB) in Frankfurt, Germany, is the reserve bank for the Eurozone. The ECB sets interest rates and manages monetary policy. The ECB’s primary mandate is to maintain price stability, which means either controlling inflation or stimulating growth. Its primary tool is the raising or lowering of interest rates. Relatively high interest rates – or the expectation of higher rates – will usually benefit the Euro and vice versa. The ECB Governing Council makes monetary policy decisions at meetings held eight times a year. Decisions are made by heads of the Eurozone national banks and six permanent members, including the President of the ECB, Christine Lagarde.
Eurozone inflation data, measured by the Harmonized Index of Consumer Prices (HICP), is an important econometric for the Euro. If inflation rises more than expected, especially if above the ECB’s 2% target, it obliges the ECB to raise interest rates to bring it back under control. Relatively high interest rates compared to its counterparts will usually benefit the Euro, as it makes the region more attractive as a place for global investors to park their money.
Data releases gauge the health of the economy and can impact on the Euro. Indicators such as GDP, Manufacturing and Services PMIs, employment, and consumer sentiment surveys can all influence the direction of the single currency. A strong economy is good for the Euro. Not only does it attract more foreign investment but it may encourage the ECB to put up interest rates, which will directly strengthen the Euro. Otherwise, if economic data is weak, the Euro is likely to fall. Economic data for the four largest economies in the euro area (Germany, France, Italy and Spain) are especially significant, as they account for 75% of the Eurozone’s economy.
Another significant data release for the Euro is the Trade Balance. This indicator measures the difference between what a country earns from its exports and what it spends on imports over a given period. If a country produces highly sought after exports then its currency will gain in value purely from the extra demand created from foreign buyers seeking to purchase these goods. Therefore, a positive net Trade Balance strengthens a currency and vice versa for a negative balance.
Euro PRICE Today
The table below shows the percentage change of Euro (EUR) against listed major currencies today. Euro was the strongest against the New Zealand Dollar.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | -0.01% | -0.01% | 0.03% | -0.01% | 0.00% | 0.01% | -0.01% | |
| EUR | 0.01% | 0.00% | 0.02% | 0.03% | 0.02% | 0.04% | 0.00% | |
| GBP | 0.00% | -0.00% | 0.00% | 0.00% | 0.02% | 0.02% | -0.00% | |
| JPY | -0.03% | -0.02% | 0.00% | -0.03% | -0.03% | -0.01% | -0.04% | |
| CAD | 0.00% | -0.03% | -0.00% | 0.03% | 0.00% | 0.02% | 0.00% | |
| AUD | -0.00% | -0.02% | -0.02% | 0.03% | -0.01% | 0.00% | -0.01% | |
| NZD | -0.01% | -0.04% | -0.02% | 0.01% | -0.02% | -0.01% | -0.02% | |
| CHF | 0.00% | -0.00% | 0.00% | 0.04% | -0.00% | 0.01% | 0.02% |
The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the Euro from the left column and move along the horizontal line to the US Dollar, the percentage change displayed in the box will represent EUR (base)/USD (quote).
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