• EUR/USD has breached the support level at 1.05500, and selling momentum has strengthened the current downtrend in the chart.

   

• The Federal Reserve (Fed) has emphasized slowing down the pace of interest rate cuts, a move that could be crucial in maintaining the strength of the U.S. dollar over the long term.

EUR/USD has recorded a 2% decline over the last five sessions, favoring the dollar and placing the euro in a sustained bearish zone. This selling pressure has intensified following the Fed’s recent decision, accompanied by neutral remarks regarding decisions for the upcoming year. This bearish pressure has pushed the price to break the crucial two-year support level at 1.0550.

Fed’s Remarks

In its final meeting of the year, the Fed reduced interest rates to a range of 4.25%-4.5%, down from the previous 4.5%-4.75% (a 25-basis-point cut). This adjustment aligns with efforts to stimulate the U.S. economy in early 2025.

However, Fed Chair Jerome Powell highlighted that although inflation has decreased significantly, it remains at elevated levels, making it challenging to achieve the central bank’s 2% target. Powell also stressed the need to proceed cautiously in future decisions,given that current projections place inflation at 2.5% for 2025, still far from the central bank’s target for the upcoming year.

In this context, the CME Group’s probability tool currently reflects a 91% chance that the Fed will keep rates unchanged at its next meeting, scheduled for January 29. And, for the 19-march decision, the probability stands in 53% of rates unchanged versus 43% of rate reduction. That said, now the market is seeing a neutral decision bias for next decisions which could help maintain higher interest rates, leading to a stronger dollar perspective. Remember that these probabilities could shift based on economic developments leading up to that date.

Interest Rate Probability Chart January – CME Group

Source: CmeGroup

Interest Rate Probability Chart March – CME Group

Source: CmeGroup

Given the context outlined, the Fed’s interest rate of 4.5% remains significantly higher than the European Central Bank (ECB) rate of 3.15%. This differential could continue to attract investment into U.S. fixed-income assets, increasing demand for the dollar and exerting selling pressure on the EUR/USD. This scenario will likely persist as long as the U.S. central bank maintains rates above 4%.

EUR/USD Technical Forecast

EUR/USD has maintained a steady downtrend since late September, reaching a minimum price in the 1.03 range. Recent U.S. monetary policy events have strengthened the dollar, once again driving the price close to these lows not seen since November.

Source: StoneX, Tradingview

• Downtrend Channel: The current downtrend channel favoring the dollar remains intact, with no significant bullish breakout threatening the formation. However, it’s important to note that the recent low at 1.03 remains a relevant support level that could trigger bullish corrections as the channel evolves. This level also represents the last low within the downtrend channel, and further lower lows are required to avoid a lateral consolidation in the short term.

   

• RSI: The RSI indicator remains below 50, signaling that bearish momentum dominates the market in the short term. However, the RSI line is near an oversold zone, around the 20 level, which could indicate potential exhaustion of the bearish momentum and open the door for bullish corrections near the closest support level (1.03).

  Key Levels:

• 1.03: The current support level corresponds to areas of indecision that served as a barrier in 2023. A drop below this level could lead to new lows in the current downtrend and reinforce the bearish bias.

   

• 1.05500: This is the new resistance zone, coinciding with the lower boundary of the lateral range maintained during 2024. It also converges with the upper line of the downtrend channel and the Ichimoku cloud, further reinforcing its importance as a barrier. Movements above this level could weaken the current downtrend and threaten the channel formation.

• EUR/USD has breached the support level at 1.05500, and selling momentum has strengthened the current downtrend in the chart.

   

• The Federal Reserve (Fed) has emphasized slowing down the pace of interest rate cuts, a move that could be crucial in maintaining the strength of the U.S. dollar over the long term.

EUR/USD has recorded a 2% decline over the last five sessions, favoring the dollar and placing the euro in a sustained bearish zone. This selling pressure has intensified following the Fed’s recent decision, accompanied by neutral remarks regarding decisions for the upcoming year. This bearish pressure has pushed the price to break the crucial two-year support level at 1.0550.

Fed’s Remarks

In its final meeting of the year, the Fed reduced interest rates to a range of 4.25%-4.5%, down from the previous 4.5%-4.75% (a 25-basis-point cut). This adjustment aligns with efforts to stimulate the U.S. economy in early 2025.

However, Fed Chair Jerome Powell highlighted that although inflation has decreased significantly, it remains at elevated levels, making it challenging to achieve the central bank’s 2% target. Powell also stressed the need to proceed cautiously in future decisions,given that current projections place inflation at 2.5% for 2025, still far from the central bank’s target for the upcoming year.

In this context, the CME Group’s probability tool currently reflects a 91% chance that the Fed will keep rates unchanged at its next meeting, scheduled for January 29. And, for the 19-march decision, the probability stands in 53% of rates unchanged versus 43% of rate reduction. That said, now the market is seeing a neutral decision bias for next decisions which could help maintain higher interest rates, leading to a stronger dollar perspective. Remember that these probabilities could shift based on economic developments leading up to that date.

Interest Rate Probability Chart January – CME Group

Source: CmeGroup

Interest Rate Probability Chart March – CME Group

Source: CmeGroup

Given the context outlined, the Fed’s interest rate of 4.5% remains significantly higher than the European Central Bank (ECB) rate of 3.15%. This differential could continue to attract investment into U.S. fixed-income assets, increasing demand for the dollar and exerting selling pressure on the EUR/USD. This scenario will likely persist as long as the U.S. central bank maintains rates above 4%.

EUR/USD Technical Forecast

EUR/USD has maintained a steady downtrend since late September, reaching a minimum price in the 1.03 range. Recent U.S. monetary policy events have strengthened the dollar, once again driving the price close to these lows not seen since November.

Source: StoneX, Tradingview

• Downtrend Channel: The current downtrend channel favoring the dollar remains intact, with no significant bullish breakout threatening the formation. However, it’s important to note that the recent low at 1.03 remains a relevant support level that could trigger bullish corrections as the channel evolves. This level also represents the last low within the downtrend channel, and further lower lows are required to avoid a lateral consolidation in the short term.

   

• RSI: The RSI indicator remains below 50, signaling that bearish momentum dominates the market in the short term. However, the RSI line is near an oversold zone, around the 20 level, which could indicate potential exhaustion of the bearish momentum and open the door for bullish corrections near the closest support level (1.03).

  Key Levels:

• 1.03: The current support level corresponds to areas of indecision that served as a barrier in 2023. A drop below this level could lead to new lows in the current downtrend and reinforce the bearish bias.

   

• 1.05500: This is the new resistance zone, coinciding with the lower boundary of the lateral range maintained during 2024. It also converges with the upper line of the downtrend channel and the Ichimoku cloud, further reinforcing its importance as a barrier. Movements above this level could weaken the current downtrend and threaten the channel formation.

• Three BoE policymakers were ready to lower borrowing costs.

• Data revealed that UK retail sales missed forecasts, increasing by 0.2%.

• The US economy expanded by 3.1% in the fourth quarter, above estimates of 2.8%.

The GBP/USD outlook shows growing enthusiasm among pound bears as Bank of England rate cut expectations increase. At the same time, expectations for fewer rate cuts in the US in 2025 have boosted the dollar, further weighing on sterling.

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The pound collapsed to new lows on Thursday after the Bank of England policy meeting. Although the central bank kept interest rates unchanged, there was a shift in sentiment among some policymakers. Three policymakers were ready to lower borrowing costs, which was unexpected. As a result, markets increase bets for rate cuts in 2025. 

Recent economic data have pointed to a recovering labor market and high inflation. Consequently, market participants were pricing a gradual easing pace in the coming year. However, if three policymakers were ready to cut rates in December, the number might increase at the next meeting. 

Meanwhile, data revealed that UK retail sales missed forecasts, increasing by 0.2%. Economists had expected a 0.5% increase. The miss was a sign that consumer spending dropped, which could put more pressure on the Bank of England to lower borrowing costs. 

On the other hand, the dollar remained strong after the Fed projected fewer rate cuts in 2025. At the same time, data on Thursday revealed that the US economy expanded by 3.1% in the fourth quarter, above estimates of 2.8%. Moreover, unemployment claims fell more than expected, showing a resilient economy.

GBP/USD key events today

GBP/USD technical outlook: Bears prompt 100% retracement

On the technical side, the GBP/USD price has made a sharp move from the 30-SMA to the 1.2500 key support level. The decline has put the price well below the 30-SMA and the RSI near the oversold region, supporting a bearish bias. 

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Previously, the price traded in a shallow bullish trend but reversed when it broke below its support trendline. Since then, bears have been in the lead, making lower highs and lows. The most recent move has made a 100% retracement of the previous bullish trend. 

Therefore, a break below the 1.2500 support will be a significant milestone for bears. It will signal a continuation of the bearish trend that was there before bulls prompted a corrective move.

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• GBP/JPY declines to near 196.00 as higher number of BoE officials voted for an interest rate reduction on Thursday than what market participants had anticipated.
• UK Retail Sales rose at a slower-than-expected pace in November.
• Hotter Japan National CPI data for November has boosted BoJ hawkish bets.

The GBP/JPY pair is down almost 0.4% to 196.00 in Friday’s North American session. The asset faces selling pressure after the release of the United Kingdom (UK) Retail Sales data for November, which came in slower than projected due to weak demand at clothing stores.

The Retail Sales data, a key measure of consumer spending, rose by 0.2%, slower than estimates of 0.5%. Weak Retail Sales data weighed on the Pound Sterling (GBP). However, the major reason behind the British currency’s underperformance across the board on Friday is the dovish buildup for the UK interest rates outlook by the Bank of England (BoE).

The BoE left its key borrowing rates at 4.75%, as expected, in which three of nine Monetary Policy Committee (MPC) members proposed cutting interest rates by 25 basis points (bps) to 4.5%. However, market participants anticipated that only one policymaker would vote for a dovish interest rate decision.

Meanwhile, the Japanese Yen (JPY) ticks higher on Friday on the hotter-than-expected inflation report for November. As measured by the National Consumer Price Index (CPI), the headline inflation accelerated to 2.9% from 2.3% in October. The National CPI, excluding Fresh Food, rose by 2.7%, faster than estimates of 2.6% and the former release of 2.3%.

Accelerating price pressures have boosted expectations of more interest rate hikes by the Bank of Japan (BoJ) in upcoming policy meetings.

GBP/JPY wobbles near the upper portion of the Symmetrical Triangle formation on a daily timeframe, which suggests a sharp volatility contraction. The outlook of the pair is bullish as it trades above the 50- and 200-day Exponential Moving Averages (EMAs), which are around 194.25 and 193.00, respectively.

The 14-day Relative Strength Index (RSI) hovers near 60.00. A bullish momentum would trigger if it breaks above this level.

A fresh upside towards the October high of 200.00 and the June 14 high of 201.60 would appear if the asset breaks above Thursday’s high of 199.00.

On the flip side, a downside below the December 9 low of 190.60 will expose it to a December 3 low of around 188.00, followed by a September 18 low of 185.80.

GBP/JPY daily chart

GBP/USD tumbles near 1.2500 breakdown as US data boosts USD

The GBP/USD extended its losses during the North American session, with sellers targeting a break below 1.2500. Cable is losing over 0.48% or 60 pips on the day. At the time of writing, the pair hovers near 1.2500.

US data released ahead of the New York open hinted that the labor market remains solid and the economy is expanding. Initial Jobless Claims for the week ending December 14 fell from 242K to 220K, below forecasts of 230K. Read more…

GBP/USD Forecast: Pound Sterling could renew multi-month lows

Following Wednesday’s loss of more than 1%, GBP/USD extended its slide on Thursday. After touching its weakest level since early May near 1.2470 in the Asian trading hours on Friday, the pair recovered to the 1.2500 area in the European session.

The Bank of England (BoE) maintained its bank rate at 4.75% after the December meeting, as expected. On a dovish twist, however, three members of the Monetary Policy Committee (MPC) voted for a 25 basis points (bps) rate cut. In its policy statement, the BoE said that they can’t commit to when or by how much they will cut rates in 2025, due to heightened uncertainty in the economy. Pound Sterling came under bearish pressure following the BoE’s policy announcements. Read more…