EUR/USD Holds Steady at 1.1650 Amid US Data and ECB Concerns

The EUR/USD currency pair remained stable on Friday, trading around the 1.1650 mark, and is set to conclude the week with a gain of 0.39%. As traders focus on the upcoming Federal Reserve meeting next week, the market has shown limited movement, reflecting a consolidation phase near this key level.

Economic data from the United States provided mixed signals. The latest inflation figures were largely in line with expectations, while consumer sentiment reported by the University of Michigan indicated a positive shift. This combination has influenced market sentiment, leading to some adjustments in the performance of the US Dollar against the Euro.

In the Eurozone, growth data surpassed forecasts, highlighting the region’s economic resilience. However, Francois Villeroy, a member of the European Central Bank (ECB), cautioned that the current monetary policy stance does not guarantee comfort. He emphasized that the risks to inflation are skewed more towards the downside, suggesting a cautious outlook for future policy adjustments.

Despite these economic indicators, the ongoing conflict between Russia and Ukraine continues to exert pressure on the Euro, even as there are reports of some diplomatic progress between Moscow and Washington. This geopolitical uncertainty complicates the Eurozone’s economic landscape and may hinder the Euro’s potential gains.

US Inflation and Consumer Sentiment Shape Market Dynamics

The Core Personal Consumption Expenditures (PCE) Price Index, a key inflation measure closely monitored by the Federal Reserve, recorded a month-on-month increase of 0.2% in September, consistent with both previous months and forecasts. On a year-over-year basis, the core PCE dipped slightly from 2.9% to 2.8%, aligning with market expectations.

Consumer sentiment has shown signs of improvement, with the University of Michigan’s index for December rising to 53.3, exceeding the forecast of 52.0 and marking an increase from November’s reading of 51.1. Furthermore, inflation expectations have moderated, with one-year forecasts dropping from 4.5% to 4.1%, and five-year expectations from 3.4% to 3.2%. This decline suggests a lessening concern among households regarding long-term price increases.

Despite these positive indicators, market expectations for a 25 basis points rate cut by the Federal Reserve next week remain stable at 84%, according to data from Capital Edge. The US Dollar Index, which measures the dollar’s performance against six major currencies, concluded the week down by 0.09% at 98.98.

Technical Outlook for EUR/USD

The technical analysis of the EUR/USD pair indicates that it has been holding steady around the 1.1650 level for four consecutive sessions. The pair has established a narrow consolidation range between 1.1650 and 1.1700. Buyers have struggled to break through the upper bound, which has opened the door for bearish momentum. The Relative Strength Index (RSI) suggests a potential downside risk, with the possibility of testing lower support levels.

A daily close below 1.1650 may lead to a challenge of the 50-day Simple Moving Average near 1.1609. Should this level be breached, the next significant support could be the 20-day SMA at 1.1589, followed by the psychological level of 1.1500.

Overall, the current market dynamics reflect a cautious sentiment as traders await further clarity from both US economic developments and ECB policy directions. The interplay of these factors will likely continue to influence the EUR/USD exchange rate in the coming days.