Weak PMI’s Douse the Post-Fed & ECB Advance of EUR/USD
EUR/USD Analysis
The US Federal Reserve maintained rates at 5.25-5.5% for third straight meeting in a row and embraced upcoming rate cuts. Its updated projections revealed a faster pace of easing than previsouly expected, as the median rate for 2024 is now seen at 4.6% (from 5.1% previously) [1]. This suggests at least three rate cuts or 90 basis points of cuts. Markets are more aggressive, with CME's FedWatch Tool currently assigning the highest probability to rates falling at 4% by the end of the next year. [2]
The European Central Bank also stood pat a day later, but the similarities end there. It once again pointed to peak rates, but pushed back against market bets for cuts, despite lowering its inflation projections. In contrast with their US peers, European officials "did not discuss rate cuts at all" according to Ms Lagarde. The ECB President warned that "there is still work to be done and that can very much take the form of holding". [3]
EUR/USD rallied this week, due to the divergence between the two central banks. The US Fed pointed to rate cuts, while its European counterpart dismissed any such talk. This has brought 1.1276 in the spotlight, but we remain cautious around the common currency's ability to take that level out.
However, CPI Inflation in Eurozone has decelerated sharply to 2.4% in November, while the US data showed persistence, with CPI staying above 3%. The European economy contracted in the third quarter, whereas the US one is overperforming. This places the ECB at a better position to begin loosening its stance and the Fed did not take more tightening off the table, despite its dovish shift.
Today's weak preliminary PMIs from Eurozone and Germany strengthen the case for a Fed pivot and douse the EUR/USD advance. The failure to set higher highs and the slide create scope for a test of the EMA200 and the 38.2% Fibonacci. Daily closes below it would pause the upside bias, but strong catalyst would be needed for bigger losses that would challenge 1.0581.
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 15 Dec 2023 https://www.federalreserve.gov/monetarypolicy/files/fomcprojtabl20231213.pdf | |
| Retrieved 15 Dec 2023 https://www.cmegroup.com/markets/interest-rates/cme-fedwatch-tool.html | |
| Retrieved 17 Apr 2026 https://www.ecb.europa.eu/press/pressconf/2023/html/ecb.is231214~df8627de60.en.html |
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