EUR/USD rose slightly to around 1.0515 in Monday’s European session, ahead of key PMI data from both the Eurozone and the US for December.
The ECB is expected to continue its rate-cutting cycle next year, with market forecasts pointing to a total reduction of 100 basis points (bps) by mid-2025. Investors are closely watching the Fed’s upcoming interest rate decision, particularly its dot plot projections, for insights into future US monetary policy.
PMI Data and Market Reaction
The preliminary Eurozone HCOB Purchasing Managers’ Index (PMI) for December showed business activity contracting at a slower pace. The Composite PMI rose to 49.5 from 48.3, driven mainly by an improvement in the service sector, which returned to expansionary territory with a PMI reading of 51.4. Economists had anticipated a decline to 49.4. Meanwhile, the Manufacturing PMI showed a contraction but at a slower pace than expected, registering at 45.2 compared to forecasts of 45.0.
Despite the better-than-expected PMI data, the Euro (EUR) continues to face downward pressure, supported by expectations of further rate cuts from the ECB amid slowing inflation momentum. ECB President Christine Lagarde, speaking at an Annual Economics Conference, reiterated that further rate cuts would be considered if incoming data confirm disinflation is on track. French central bank Governor Francois Villeroy de Galhau also emphasized the likelihood of additional rate cuts next year.
Fed Policy Remains in Focus
The US Dollar (USD) has weakened slightly amid anticipation of a less hawkish Federal Reserve. The Fed is expected to announce a 25 basis point rate cut at its December meeting, bringing the target range to 4.25%-4.50%. Investors are paying close attention to the Fed’s Summary of Economic Projections, or the dot plot, which outlines future rate expectations.
According to a Bloomberg survey conducted from December 6 to 11, economists now expect the Fed to reduce rates three times in 2025, reflecting concerns over slowing disinflation and potential upside risks to inflation, particularly due to policies from President-elect Donald Trump.
Technical Outlook
EUR/USD continues to trade above the key psychological level of 1.0500 but remains under resistance near 1.0535. The pair remains below its 20-day Exponential Moving Average (EMA) at 1.0545, indicating bearish near-term momentum.
The 14-day Relative Strength Index (RSI) is around 40.00, suggesting potential bearish pressure if the RSI falls further below this level. Support for EUR/USD remains at the two-year low of 1.0330. On the upside, resistance at 1.0545 remains a critical barrier for Euro bulls.