Created on December 12, 2024

• Stronger US inflation figures have contributed to selling pressure on the EUR/USD pair, with losses extending below the 1.0500 support level to around 1.0480, where it is currently trading.
• This comes amid cautious anticipation of another major event that will impact the performance of the Euro-Dollar, namely the announcement of the European Central Bank.

Euro-Dollar Awaits ECB Announcement

According to reliable trading platforms, the EUR/USD pair may remain in a cautious downward waiting position until the announcement of the European Central Bank today. In general, financial markets expect another 25-basis point cut from the European Central Bank, which would reduce the rate from 3.25% to 3.00% following a similar 25 basis point cut in October. Overall, if the European Central Bank implements another interest rate cut this month, the Euro is likely to weaken against other major currencies due to further monetary policy easing within the bloc. Ahead of today’s event, the Euro’s performance has struggled to attract investor interest due to a mix of mixed economic data and generally positive market sentiment, which tends to diminish the attractiveness of the single European currency.

As a safe-haven asset, the Euro often loses strength when market conditions are optimistic, making it less attractive compared to higher-risk currencies.

Gains in European Stock Markets Did Not Support the Euro for Long

According to stock trading company platforms, the Euro Stoxx 50 (SX5E) index has seen an eight-day consecutive upward trend. This has been helping to support the Euro against the US Dollar. According to trades, the SX5E index has risen for eight consecutive days, outperforming the SPX index throughout those days, a feat we have seen only once before in more than 25 years. Overall, the rise in European equities has led to an exceptionally high information ratio for the SX5E index, indicating strong risk-adjusted returns. The rise was broad-based, encompassing most European sectors and positively impacting the exchange rate of the Euro against the Dollar (EUR/USD).

Why Have European Stocks Risen Recently?

The rise in European stock prices has been observed despite the economic and political uncertainty of the largest economies in the Eurozone. Barclays attributed this rise in Eurozone equities to several key factors:

• Significantly bearish position: The European market had a pessimistic outlook on European equities in the period leading up to this period. It is likely that these negative sentiments, resulting from concerns about tariffs, growth prospects, and political instability, created an environment where many of the potential downside risks had already been priced into the market.
• Technical pressure: The SX5E’s eight-day winning streak, coupled with its outperformance of the S&P 500 over the same period, is a statistically rare phenomenon, having only been observed once before in over 25 years. This suggests a technical pressure, amplified by short selling, particularly by commodity trading advisors (CTAs).
• Possibility of interest rate cuts by the European Central Bank: Barclays highlights the increasingly dovish stance of the European Central Bank as a supportive factor for European equities. Accordingly, the possibility of interest rate cuts, amid political uncertainty and weak growth, provides a hedge against downside risks in the near term. For the EUR/USD exchange rate, interest rate cuts are typically seen as a headwind because they mean lower Eurozone bond yields. However, a decline in European stock prices may limit any decline.
• Positive response to news: While the positive news was gradual, the market responded positively, likely due to previous bearish sentiments. The avoidance of worst-case scenarios and any positive developments, even if minor, contributed to the upward momentum.

Trading Tips:

The EUR/USD price is increasing in the bearishness ahead of today’s ECB announcement. Furthermore, be cautious and do not rely on what is expected from the bank and wait for the reaction to the announcement to move towards strong trading opportunities.

EUR/USD Analysis Today:

By examining the performance of the Euro-US Dollar EUR/USD price, it is confirmed that the general downward trend is stronger and may remain as long as the price is stable around and below the psychological support level of 1.0500. As we mentioned before and I confirm now, expectations for the future parity price of the Euro Dollar may strengthen if the bears move first towards the support levels of 1.0435 and 1.0320 respectively. At the same time, the technical indicators will move towards strong oversold levels. Led by the Relative Strength Index and the MACD indicator. In contrast, to achieve an initial break of the downward trend, the bulls must move the currency pair towards the resistance levels of 1.0670 and 1.0830 respectively. Also, the Euro Dollar will focus on US data led by the weekly jobless claims and the inflation reading of the Producer Price Index.

Ready to trade our daily EUR/USD Forex analysis? We’ve made this forex brokers list for you to check out.