EUR/USD Tests Critical Support on ECB Peak Rates Prospects
EUR/USD Analysis
The pair comes from its best month of the year, during which it reached the highest levels since summer, as recent data from the US raise the bar for further tightening by the Fed, harming the greenback. In the latest important release, PCE inflation eased to 3.5% y/y and the lowest in more than two years. Furthermore, markets perceived last week's speech by Chair Powell as dovish and according to CME's FedWatch Tool, they anticipate 125 basis points of cuts next year, starting in March. [1]
On the other side of the Atlantic, its European counterpart struggled to contain price pressures, but the latest data show fast progress. The Consumer Price Index decelerated to 2.4% y/y in November according to preliminary data, in the slowest increase in two years. ECB voter and hawk Ms Schnabel spoke of "remarkable" progress in today's interview with Reuters. Furthermore, she hinted at peak rates, saying that the latest data have made further rate hikes "rather unlikely". [2]
EUR/USD pulls back this month, as Eurozone inflation is lower and closer to the 2% target compared to the US, with the economy in bad shape. This creates a more compelling case for the ECB to refrain from further tightening and to cut rates before its US peer. The Fed has adopted a softer stance and may have already done enough to restore price stability. However, inflation is still high, the labor market is tight, the economy outperforms and Chair Powell warned of more hikes if necessary. [3]
EUR/USD faces pressure today after Ms Schnabel's remarks, retesting the critical 38.2% Fibonacci of its recent relief-rally and the EMA200. Daily closes below it could send it into the daily Ichimoku Cloud (starting at around 1.0700), but the 2023 lows are distant (1.0447).
On the other hand, market hopes for a Fed pivot can help contain the pullback. Moreover, the RSI points to overbought conditions and above the aforementioned key support area, EUR/USD has the ability to push for higher highs (1.1017). The next leg of the move will depend on the outcome of Friday's US jobs report.
Nikos Tzabouras
Senior Financial Editorial Writer
Nikos Tzabouras is a graduate of the Department of International & European Economic Studies at the Athens University of Economics and Business. With extensive experience in market analysis and a strong foundation in international relations, he brings a unique perspective to financial markets. Nikos emphasizes not only technical analysis but also on fundamentals and the growing influence of geopolitics on financial trends.
As a Senior Financial Editorial Writer, he delivers comprehensive and forward-looking insights across a wide range of asset classes, including equities, commodities, and currencies. His work explores how macroeconomic events, political developments, and global policies impact market dynamics, providing readers with a deeper understanding of both short-term movements and long-term trends.
References
| Retrieved 04 Dec 2023 https://www.cmegroup.com/markets/interest-rates/cme-fedwatch-tool.html | |
| Retrieved 04 Dec 2023 https://www.ecb.europa.eu/press/inter/date/2023/html/ecb.in231205~3ba2bbfcfc.en.html | |
| Retrieved 10 Apr 2026 https://www.federalreserve.gov/newsevents/speech/powell20231201a.htm |
Any opinions, news, research, analyses, prices, other information, or links to third-party sites contained on this website are provided on an "as-is" basis, as general market commentary and do not constitute investment advice. The market commentary has not been prepared in accordance with legal requirements designed to promote the independence of investment research, and it is therefore not subject to any prohibition on dealing ahead of dissemination. Although this commentary is not produced by an independent source, FXCM takes all sufficient steps to eliminate or prevent any conflicts of interests arising out of the production and dissemination of this communication. The employees of FXCM commit to acting in the clients' best interests and represent their views without misleading, deceiving, or otherwise impairing the clients' ability to make informed investment decisions. For more information about the FXCM's internal organizational and administrative arrangements for the prevention of conflicts, please refer to the Firms' Managing Conflicts Policy. Please ensure that you read and understand our Full Disclaimer and Liability provision concerning the foregoing Information, which can be accessed here.