13 Jan 2025

• EUR/USD slumps to near 1.0200 as the US Dollar remains firm on expectations that the Fed will cut interest rates only once this year.
• Traders pare Fed dovish bets after upbeat US NFP data for December.
• ECB’s Lane supports more rate cuts to ensure the Eurozone doesn’t grow too slowly.
• EUR/USD has declined to a new low not seen in over two years, approaching the 1.0200 mark at the beginning of the week. The primary currency pair is under pressure as the US Dollar (USD) exhibits robust performance, bolstered by rising bond yields. The US Dollar Index (DXY), which measures the value of the Greenback against six major currencies, has surged to nearly 110.00, marking its highest point in more than two years. Meanwhile, 10-year US Treasury yields are trading near a new yearly peak of approximately 4.75%.
  
  US bond yields have increased amid intensifying speculation that the Federal Reserve's (Fed) current cycle of policy easing has temporarily halted. Expectations for a dovish stance from the Fed have diminished following the release of positive Nonfarm Payrolls (NFP) data for December last Friday. The new payroll figures exceeded those of November, and the Unemployment Rate has shown a decline.
• Bank of America (BofA) stated in a recent note that, in light of a resilient labor market, they believe the cycle of interest rate cuts by the Federal Reserve has concluded. The bank emphasized that economic activity remains "robust" and expressed that there is "little reason for additional easing." Furthermore, BofA highlighted that the risks associated with inflation have shifted towards the upside.
  
  The CME FedWatch tool indicates that the Federal Reserve is unlikely to implement any interest rate cuts prior to its policy meeting in June.
  
  This week, investors will closely monitor the US Producer Price Index (PPI) and the Consumer Price Index (CPI) data for December, which are scheduled for release on Tuesday and Wednesday, respectively.

• Daily digest market movers: EUR/USD declines as risk-off mood weighs on Euro

• EUR/USD is experiencing downward pressure due to negative market sentiment, which has significantly impacted the Euro (EUR). Investors are increasingly risk-averse amid concerns that the protectionist policies anticipated under the administration of President-elect Donald Trump may trigger a global trade conflict, thereby reducing the attractiveness of risk-sensitive assets.
  
  President Trump is contemplating the declaration of a national economic emergency, which would provide a legal basis for implementing a new tariff strategy. During his election campaign, he warned that the European Union (EU) would face significant consequences for not purchasing "enough American exports."
  
  On the domestic front, strong expectations for further policy easing from the European Central Bank (ECB) continue to hinder the Euro's performance. In a "policy dialogue" at the Asian Financial Forum (AFF) 2025 on Monday, ECB Chief Economist Philip Lane indicated that additional interest rate reductions are probable, as the central bank aims to prevent the economy from growing "too slowly." Lane emphasized the need for the ECB to adopt a balanced approach, avoiding extremes of being "too aggressive or too cautious" this year.

• Technical Analysis: EUR/USD posts fresh two-year low at 1.0200

• EUR/USD has fallen close to a significant support level on the weekly chart, which is derived from the September 2022 peak of 1.0200. The overall sentiment for this major currency pair remains predominantly negative, as evidenced by the downward trend of the 20-week Exponential Moving Average (EMA) positioned at 1.0580.
  
  Additionally, the 14-week Relative Strength Index (RSI) has dipped below 30.00, suggesting a considerable bearish momentum.
  
  In terms of potential support, the pair may encounter a level around the psychological mark of 1.0100. On the other hand, the high of 1.0437 recorded on January 6 will serve as a crucial resistance point for Euro buyers.