Fundamental Overview

We continue to see a pullback in the US Dollar as the market kind of reached the peak in the repricing of interest rates expectations and it will need stronger reasons to price out the remaining rate cuts for 2025.

This was signalled by the lack of US Dollar strength after lots of strong US data with the market’s pricing remaining largely unchanged around three rate cuts by the end of 2025. We might see the greenback remaining on the backfoot at least until the US CPI due in two weeks.

On the EUR side, the probabilities for a 50 bps cut in December rose to 63% from 26% last Friday due to the weak Eurozone PMIs. That might have been an overreaction as the market pared back those expectations this week.

Today, we get the Eurozone CPI report. The focus will be on the Core measures and the services inflation rate as that has been stuck at 4% for a year.

A downside surprise in the Core CPI measures might get us to the ECB decision with basically a 50/50 chance, but the central bank will likely cut by 25 bps anyway. An upside surprise, on the other hand, should give the EUR a boost with the economy likely picking up next year and the aggressive rate cuts expectations being scaled back.

EURUSD Technical Analysis – Daily Timeframe

On the daily chart, we can see that EURUSD erased all the losses from the Eurozone PMIs and it’s now trading near the 1.06 handle. From a risk management perspective, the sellers will have a better risk to reward setup around the trendline where they will also find the 61.8% Fibonacci retracement level for confluence. The buyers, on the other hand, will want to see a break higher to increase the bullish bets into the 1.09 handle next.

EURUSD Technical Analysis – 4 hour Timeframe

On the 4 hour chart, we can see that we had a quick push higher this morning into the 1.06 handle that eventually got erased as the sellers stepped in around that key swing level. The buyers will want to see the price breaking higher to increase the bullish bets into the trendline, while the sellers will keep on defending the level to position for a drop into new lows.

EURUSD Technical Analysis – 1 hour Timeframe

On the 1 hour chart, we can see that we have minor upward trendline defining the current bullish momentum. The buyers will likely keep on leaning on the trendline to position for new highs, while the sellers will look for a break lower to increase the bearish bets into new lows. The red lines define the average daily range for today.

Upcoming Catalysts

Today we have Eurozone CPI report with the Core CPI Y/Y expected at 2.8% vs. 2.7% prior.