18 Dec 2024

• EUR/USD consolidates in a tight range near 1.0500, with investors focusing on the Fed’s policy meeting.
• The Fed is widely expected to cut interest rates by 25 bps but to deliver slightly hawkish remarks on policy guidance.
• ECB’s Rehn said that inflation stabilizing near the central bank’s target of 2% paves the way for more interest rate cuts
• EUR/USD is currently trading within a narrow range close to the significant level of 1.0500 during the North American session on Wednesday. The major currency pair is in a phase of consolidation as market participants await the results of the final Federal Reserve (Fed) policy meeting of the year, scheduled to conclude at 19:00 GMT. Additionally, the Fed will publish an updated Summary of Economic Projections (SEP), commonly referred to as the dot plot, which will provide new economic forecasts and insights into the anticipated trajectory of Federal Fund Rates in the medium to long term.
  
  Analysts from Bank of America (BofA) predict that the Fed will implement a 25 basis points (bps) reduction in interest rates, bringing them to a range of 4.25%-4.5%. The CME FedWatch tool indicates that market participants have fully anticipated this 25 bps rate cut.
  
  Given that traders have already accounted for a typical rate cut announcement, the primary focus for investors will be on Fed Chair Jerome Powell’s subsequent press conference regarding interest rate guidance. BofA analysts anticipate that Powell will suggest a gradual approach to rate cuts moving forward, potentially hinting at a pause in January, contingent upon economic data aligning with expectations.

• Meanwhile, traders are also confident that the Fed will leave interest rates unchanged at 4.25%-4.50% in January, according to the CME FedWatch tool.

  Ahead of the Fed policy decision, the US Dollar (USD) shows a muted price action, with the US dollar index  (DXY) wobbling near 107.00.

  Daily digest market movers: EUR/USD remains in tight range with Fed policy in focus

  EUR/USD remains stable as the US Dollar consolidates in anticipation of the Federal Reserve's policy decision. On Wednesday, the Euro (EUR) experienced gains across various markets; however, its future outlook appears negative as investors predict that the European Central Bank (ECB) will move towards a neutral interest rate, projected to be around 2%, by the first half of 2025.
  
  Market participants anticipate that the ECB will implement interest rate reductions at each meeting until June 2025. Officials express significant concern regarding the escalating economic risks within the Eurozone and are optimistic that inflationary pressures will sustainably align with the central bank's target in the coming year.
  
  During the European session on Wednesday, ECB policymaker and Governor of the National Bank of Belgium, Pierre Wunsch, made notably dovish comments regarding the policy outlook. In an interview with the Reuters Global Markets Forum, he indicated that he envisions "four more rate cuts" as a plausible scenario for 2025. He suggested that achieving parity between the Euro and the US Dollar would be necessary to mitigate the effects of US tariffs on Eurozone economic growth.
  
  On Tuesday, ECB policymaker and Governor of the Finnish central bank, Olli Rehn, remarked that the stabilization of inflationary pressures near the bank's 2% target paves the way for additional interest rate cuts. Rehn did not specify a particular trajectory for rate reductions, stating, “The speed and scale of the rate cuts will be determined in each meeting based on incoming data and thorough analysis.”
  
  When questioned about how Europe will respond to potential tariff increases from the incoming administration of US President-elect Donald Trump, Rehn emphasized that "negotiation is preferable," adding that the European Union's (EU) negotiating stance could be bolstered by demonstrating readiness to implement countermeasures should the United States impose higher tariffs on Europe.

  Technical Analysis: EUR/USD stays below 20-day EMA

  EUR/USD has traded back and forth around the psychological figure of 1.0500 over the last five trading days. The major currency pair faces pressure near the 20-day Exponential Moving Average (EMA), which trades around 1.0535, suggesting that the near-term trend is bearish.

  The 14-day Relative Strength Index (RSI) revolves around 40.00. The bearish momentum should trigger if the RSI (14) falls below that level.

  Looking down, the two-year low of 1.0330, reached on November 22, will provide key support. Conversely, the December 6 high of 1.0630 will be the key barrier for the Euro bulls.