FX.co ★ EUR/USD

The EUR/USD pair initiated the week with marginal downward pressure, opening down 0.05% and subsequently oscillating within a tight, volatile range as market participants fixated on the impending Federal Reserve monetary policy decision. Currently trading near 1.1637, after touching an earlier daily high of 1.1672, the pairs movement is characterized by a pervasive "wait-and-see" approach as traders brace for the highly anticipated outcome on Wednesday. While financial markets have largely priced in a 25-basis-point interest rate cut by Fed Chair Powell and the FOMC, the forward guidance and the tone of the accompanying statement will be critical in dictating the dollars future direction. This cautious stance by FX traders is occurring even as US Treasury yields are simultaneously rising, a counterintuitive move that suggests bond investors are anticipating a long-term rise in the neutral federal funds rate—a sign of underlying concern that the Feds easing cycle may be less aggressive or shorter-lived than initially priced into the short-term funds market. This anxiety is underpinned by recent data showing that US inflation, while moderating, remains near the 3% level, keeping alive the debate over the necessary terminal rate to truly tame price pressures. Furthermore, recent US economic surveys, including the Federal Reserve Bank of New Yorks consumer expectations report, highlight widespread pessimism among households regarding their current and future financial well-being, suggesting a potential fragility in the consumer-driven US economy despite the overall resilience. In contrast to the mixed signals emanating from the US, the Eurozone currency (EUR) has demonstrated relative resilience. This stability is partly attributed to the hawkish stance maintained by European Central Bank (ECB) officials. Notably, ECB President Isabel Schnabel recently expressed strong confidence in the necessity of a further interest rate hike—a sharp divergence from the Feds easing trajectory. This firm commitment to maintaining a restrictive monetary policy is providing a crucial layer of support for the euro. Furthermore, recent economic data from the bloc has been encouraging: German industrial production surprisingly improved in October, growing by a significant 1.8% month-over-month and beating market forecasts, signaling continued stabilization in Europes largest economy. Simultaneously, the Sentix investor confidence index rose in December, improving sentiment among professional investors in the euro area, even if the reading suggests the economy remains in a state of stagnation. Looking ahead, traders will focus on several high-impact data releases throughout the week. On Tuesday, attention will turn to key US labor market health checks, including the ADP four-week moving average of employment change and the JOLTS job vacancies report for October, which will further inform the markets view of the cooling US labor market. In the Eurozone, traders will monitor German trade balance data for December and a scheduled speech by ECB President Nagel, seeking further clues on the central banks rate path. From a technical perspective, the EUR/USD pair has been confined to a narrow and increasingly critical consolidation range for the past five consecutive days, oscillating between the crucial 1.1650 level and the 1.1600 psychological mark. The failure of buyers to decisively break through the 1.1700 resistance has strengthened the immediate bearish momentum, signaling a potential near-term price reversal. However, the current stability is also reflected in the Relative Strength Index (RSI), which is holding at a neutral level, indicating that the pair is not yet oversold. This technical condition suggests that a sustained push below the current support could trigger a deeper correction, but the long-term bullish outlook remains intact should the pair hold its current range. The first line of support below 1.1650 is the 50-day Simple Moving Average (SMA) at approximately 1.1605. A convincing breach of this dynamic support level would likely trigger further selling pressure, calling into play the 20-day moving average at 1.1596, and subsequently opening the door for a retest of the critical psychological support level of 1.1500. Conversely, if the pair manages to hold the current range and the Fed delivers a more dovish message than expected, a sustained breakout above 1.1700 could quickly see the EUR/USD retest 1.1800 and potentially its year-to-date high of 1.1918.