Created on December 24, 2024

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• In the shortened trading week due to Christmas holidays, the performance of the Euro is likely to remain under pressure against the US Dollar.
• Since the beginning of the week’s trading, the EUR/USD exchange rate has been stable around and below the support level of 1.0400, and as mentioned, any attempts at short-term recovery will be weak.

Reasons for the Euro’s Decline Against the US Dollar

According to licensed trading platforms, the EUR/USD pair is facing pressure again, as it failed to extend the recovery it achieved last Friday. European Central Bank President Christine Lagarde told the Financial Times at the beginning of trading this week that she is optimistic that the central bank is on track to achieve its 2.0% inflation target. Lagarde stated that we are “very close” to the point where “we achieve sustainably a 2% inflation rate over the medium term.”

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The comments reinforce the view that declining inflation will allow the ECB to “outperform” similar central banks in the coming months, keeping the euro under pressure, especially against the US dollar. Additionally, the ongoing political and economic uncertainty plaguing the largest economies in the Eurozone continues to affect investor sentiment towards the euro.

The US Federal Reserve is Not in a Hurry to Cut Interest Rates in 2025

In this context, and with the latest announcement, the US Federal Reserve indicated that it is likely to cut US interest rates only twice in 2025 amid a recovery in economic activity. However, the US dollar declined slightly on Friday following the release of some US inflation figures in personal consumption expenditures, which came in below expectations, reducing the US dollar’s rise.

According to economic calendar data, the core personal consumption expenditures price index in the United States increased by 0.1% on a monthly basis in November, half the expected rate of 0.2%. The year-over-year comparison remained unchanged at 2.8% in November, while the market expected an increase to 2.9%. Overall, this has provided some relief in the market and intensive selling of the US dollar, which needs a constant supply of “hawkish” data surprises to fuel its rise. Therefore, any accurate or below-expectations data will lead to declines in the US currency.

However, some forex analysts believe that by early 2025, the weakness of the EUR/USD pair may resume with the confirmation of more superior US economic performance. Also, the setup for the markets until 2025 is good for the trends to continue. Moreover, the US elections and the shift to a stronger US dollar have received support from the Federal Open Market Committee (FOMC), which reduced expectations of interest rate cuts in 2025.

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According to the forex analysis team at MUFG Bank, “Our outlook for the EUR/USD outlook remains that the euro will decline to near parity in the first quarter of next year before stabilizing and recovering moderately in the second half of the year.” MUFG Bank believes this is due to the divergence in economic performance between the Eurozone and the United States, which continued during the first part of the year before fading.

Trading Tips:

Keep in mind that the EUR/USD trend will remain bearish and stability below the 1.05 support confirms the strength of the bears’ control. The current trading week includes the Christmas holidays, which affects liquidity and investors’ desire to trade.

EUR/USD Analysis Today:

Dear reader, according to the latest trading performance of the EUR/USD pair, there is now decent support at the horizontal support line 1.0344, which is where the euro’s weakness was bought last week over three consecutive days. Technically, any weakness in the euro-dollar pair this week would likely test this area first and may be bought again, allowing for a more neutral tone. However, caution should be exercised as a break below the 1.0344 support level could lead us to the next important support level of 1.0230 in a relatively short period. From there, it will quickly reach the euro-dollar parity. Overall, market conditions will be tense in the next two weeks, but there are still some economic reports to watch. Low liquidity can often lead to large movements, indicating that we are not necessarily in a state of idleness for trading.

As mentioned before and we confirm now, any attempts by the EUR/USD to recover upwards will be weak and prone to a rapid collapse.

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