EUR Euro - Euro Softens, ECB Cuts Rates and Leaves Room for Further Policy Easing

Data released in the United States on Thursday showed an increase in initial jobless claims in the past week, with producer prices rising more than economists' expectations. These figures overall confirm the expectation that the Federal Reserve will cut interest rates by 25 basis points at the end of a two-day meeting next Wednesday. However, it is expected that the Fed will adopt a hawkish tone and may signal a pause in rate cuts in January to assess the outlook for inflation and the strength of the labor market. Data shows that in the week ending December 7, initial jobless claims increased by 17,000 people, seasonally adjusted to 242,000 people, which may reflect post-Thanksgiving holiday volatility. Due to soaring food costs, November's U.S. producer price index exceeded expectations, but a slowdown in service prices is bringing hope for a slowdown in inflation. According to CME's FedWatch tool, traders believe there is about a 97% chance of a rate cut next week. However, the market expects a pause in rate cuts in January, as several Fed officials last week urged caution in the pace of monetary policy easing due to the resilience of the economy.

The European Central Bank conducted its fourth rate cut of the year on Thursday and opened the door for more easing measures as political instability within the Eurozone and threats of a new round of U.S. trade wars have weighed on the Eurozone economy. Committee members unanimously agreed to cut rates by 25 basis points, lowering the ECB's deposit rate to 3%. The central bank also abandoned the previously mentioned guidance to maintain rates sufficiently restrictive, indicating that further policy easing is on the horizon, possibly as early as January, as inflation is expected to reach the ECB's 2% target in early 2025. The current market expectation is for rate cuts at every meeting from now until June next year.

Euro against the U.S. dollar trend: According to technical charts, RSI and stochastic indicators show initial signs of retreat, and after multiple rebounds following a decline in early November, the exchange rate has been consistently capped around the 1.06 level. Short-term expectations suggest that the Euro against the U.S. dollar will continue to trend downwards. Support levels will initially be seen at 1.0460 and the 1.04 level, with further support at 1.0330 and 1.0280 levels. Resistance levels look back to the 25-day moving average at 1.0550, with major resistance expected at the 1.0730 and 1.08 levels.

Forecast range:
Resistance: 1.0550 - 1.0600 - 1.0730 - 1.0800
Support: 1.0460 - 1.0400 - 1.0330 - 1.0280

News Summary
December 9
Eurozone December SENTIX investor confidence index at -17.5

December 10
Germany's November inflation rate confirmed at 2.4%
Germany's November CPI final value decreased by 0.2% from the previous month but rose by 2.2% from the same period last year
Germany's November HICP final value decreased by 0.7% from the previous month but rose by 2.4% from the same period last year

December 12
ECB cuts main refinancing rate by 0.25% to 3.15%
ECB cuts deposit facility rate by 0.25% to 3.00%
ECB cuts marginal lending rate by 0.25% to 3.40%

Focus:
Thursday: ECB Rate Decision (21:15)
Friday: Germany's October Trade Balance (15:00)
Eurozone's October Industrial Production (18:00)

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