EUR/USD: ECB to meet this week, German politics take center stage – OCBC

ECB meets on Thursday. Pair was last at 1.0564 levels, OCBC’s FX analysts Frances Cheung and Christopher Wong note.

Germany comes into focus this week

“Markets have already reduced bets of 50bp cut and is now pricing just a 25bp cut. But politics may steal the show from ECB. Germany will come into focus this week. Chancellor Scholz is expected to call for a vote of confidence on 11 December (Wednesday) and the Bundestag will vote next Monday on 16 December. To survive the vote, Scholz would need to receive the support of an absolute majority of 367 votes.”

“But in the event, he fails, then Germany is likely to make way for elections on 23 February 2025. Political risks in Europe may still weigh on EUR, but we had also flagged that many EUR negatives, such as slowing growth momentum, political fallout, ECB cut expectations, etc. are already in the price. We still do not rule out the risk of EUR short squeeze in the short term.”

“Daily momentum is mild bullish but rise in RSI slowed. Price pattern shows a classic formation of an inverted head & shoulders pattern, which is typically associated with a bullish reversal. Neckline comes in at 1.0610/20 levels. Break-out puts 1.0670 (38.2% fibo) within reach before next resistance comes in at 1.0750/75 levels (50 DMA, 50% fibo). Support at 1.0540/50 levels (23.6% fibo, 21 DMA), 1.0460 levels.”