Created on December 19, 2024

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Bearish View

• Sell the EUR/USD pair and set a take-profit at 1.0335.
• Add a stop-loss at 1.0550.
• Timeline: 1-2 days.

Bullish View

• Set a buy-stop at 1.0440 and a take-profit at 1.0550.
• Add a stop-loss at 1.0335.

The EUR/USD pair made a strong bearish breakout after the Federal Reserve delivered a relatively hawkish interest rate cut on Wednesday. It slumped to a low of 1.0420, its lowest level since November 2022. This crash pushed the US dollar to the highest level since 2022.

Hawkish Interest Rate Cut

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The EUR/USD pair dropped sharply and moved below the lower side of the bearish flag pattern after the latest Federal Reserve interest rate decision. In it, the bank decided to slash interest rates by 0.25% and hinted that it will cut two times in 2025.

The most notable thing in the statement was a dissent by Beth Hammack, the head of Cleveland Fed who preferred maintaining rates unchanged, citing the stubbornly high inflation rate. The statement signalled that the Fed will not hike interest rates in its meeting in January.

In a statement, officials also hinted that they will maintain their data-dependence. Their preliminary view is that the PCE price index will rise to 2.5% in 2025 and it moving to 2.1% in 2026.

Therefore, the EUR/USD pair dropped because of a potential divergence between the Fed and the European Central Bank (ECB). The bank slashed interest rates by 0.25% in the last meeting and pointed to more cuts next year.

Europe has had a slower recovery than the United States, with some important countries like Germany and Europe being in a recession and a political crisis. Therefore, the ECB hopes that more cuts will help to reboot the economy.

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Looking ahead, the next key data to watch on Thursday will be the third reading of US third quarter GDP data. While these numbers are important, their impact on the pair will be muted since the Fed has already delivered its decision.

EUR/USD Technical Analysis

The EUR/USD pair had a strong bearish breakout, reaching a low of 1.0410, its lowest point in weeks. It dropped below the key support level at 1.0446, its lowest level in October 2022.

The pair also formed a bearish flag chart pattern, a popular sign of downward continuation. It has also moved below the 50-day moving average. The MACD remains below the zero line, while the Relative Strength Index (RSI) pointed downwards.

Therefore, the pair will likely continue falling as sellers target the next key point at 1.0335, its lowest level in November.

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