- Economists believe that inflation will slow down in December.
- The Fed could start cutting interest rates as early as March.
- The Eurozone may have experienced a recession in the last quarter.
Thursday’s EUR/USD outlook supports a bullish trend as the dollar falls ahead of the US inflation report. Traders are on edge as they await U.S. inflation data, a key report that could support up to five Fed rate cuts next year. Economists believe that inflation will slow down in December.
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Recently, the dollar has seen a decline as investors are increasingly convinced that the Fed could start cutting interest rates as early as March. However, some believe that this is too optimistic. In a note to clients, Jane Foley, senior FX strategist at Rabobank, said investors remained overly optimistic about the prospect of a Fed rate cut.
Meanwhile, ECB policymakers confirmed the bank’s policy stance on Wednesday. Moreover, they indicated that the Eurozone may have experienced a recession in the last quarter, and the short-term outlook is poor.
Eurozone growth remained close to zero in 2023, and modest growth is expected this year, which will contribute to lower inflation. In particular, board member Isabelle Schnabel acknowledged the weak short-term economic outlook.
Similarly, Vice President Luis de Guindos suggested the bloc may have entered recession in the second half of last year. Moreover, there may be risks of a future decline in growth.
Investors have pegged at least five rate cuts in 2024, with the first expected in March or April. However, several policymakers believe this timeframe is excessive as price pressures remain.
ECB projections see inflation returning to 2% next year. However, some private forecasters disagree, suggesting that the ECB may be underestimating disinflation, in the same way that it missed inflation on the way up.
EUR/USD key events today
- US Consumer Inflation Report
- First jobless claims in the US
Technical outlook for EUR/USD: Buyers are taking control in the area of consolidation
The pair is still in its recent range, with support at 1.0900 and resistance at 1.1000. However, buyers are now in the lead in a consolidation area as the price is above the 30-SMA. At the same time, the RSI is above 50, supporting bullish momentum. The price is rising and will soon retest the range resistance.
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A bullish trend will emerge if buyers are strong enough to break out of the consolidation. Moreover, the price would break the resistance level of 1.1101. On the other hand, if range resistance remains firm, sellers will resurface to retest range support.
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