EUR Outlook: German Weakness Persists Before Potential Recovery
Key Insights:
German Ifo index continues to decline, reinforcing dovish European Central Bank (ECB) expectations.
Fiscal support from the upcoming German elections may provide future growth relief.
ING maintains a cautious view on EUR/USD, favoring a bearish stance into 2024.
Market Overview
German Growth Concerns The latest decline in Germany’s Ifo index, a key economic sentiment indicator, adds to concerns about the eurozone’s economic outlook. This softness keeps markets aligned with expectations of a dovish ECB. However, some optimism exists that fiscal measures following Germany’s upcoming election may offer medium-term support to the economy.
EUR/USD Outlook EUR/USD continues to hover near the 1.0500 level, a critical point of stability. ING anticipates this trend will persist through the end of the year. Looking ahead, ING retains a bearish bias on EUR/USD entering 2024, citing potential economic and policy shifts as President Donald Trump begins his second term.
UK Data and EUR/GBP Dynamics
UK CPI Update In the UK, November’s Consumer Price Index (CPI) data shows annual inflation rising to 2.6%, up from 2.3% in October, while monthly inflation slowed to 0.1%, in line with expectations. Core services inflation, excluding volatile elements, rose from 4.5% to 4.7%, indicating persistent underlying price pressures.
EUR/GBP Outlook EUR/GBP is expected to remain stable in the short term. However, an accelerated easing cycle from the Bank of England (BoE) next year could provide intermittent support to the pair.
Conclusion
EUR/USD is likely to remain near 1.0500 through year-end, with a bearish outlook heading into 2024 as German growth concerns persist and potential policy shifts under Trump’s second term come into focus. EUR/GBP, meanwhile, is expected to stay range-bound, though future BoE decisions could influence direction.
European Central Bank (ECB) Chief Economist Philp Lane said in an MNI interview on Wednesday that “it is prudent to maintain meeting-by-meeting approach.”
Additional takeaways
Also prudent not to pre-commit to any particular rate path.
Disinflation process is well on track.
Domestic inflation should come down.
Financing conditions remain restrictive.
Determined to ensure that inflation stabilises at 2%.
The argument for cutting by 50 bps was to show we are no longer restrictive.
Forward rates curve shows that delivering on 2% target requires more rate cuts to come.
EUR/USD consolidates in a tight range near 1.0500, with investors focusing on the Fed’s policy meeting. The Fed is widely expected to cut interest rates by 25 bps but to deliver slightly hawkish remarks on policy guidance. ECB’s Rehn said that inflation stabilizing near the central bank’s target of 2% paves the way for more interest rate cuts. EUR/USD trades in a tight range near the psychological figure of 1.0500 in Wednesday’s European session. The major currency pair consolidates as investors await the outcome of the last Federal Reserve’s (Fed) policy meeting of the year, which will conclude at 19:00 GMT. The Fed will also release the revision of the Summary of Economic Projections (SEP), also known as the dot plot, which shows fresh economic projections and where policymakers see Federal Fund Rates heading in the medium and long term.
Analysts at Bank of America (BofA) expect the Fed to reduce interest rates by 25 basis points (bps) to the 4.25%-4.5% range. The CME FedWatch tool also shows that market participants have fully priced in a 25 bps interest rate reduction.
With traders fully pricing in a standard rate cut announcement, investors will focus primarily on Fed Chair Jerome Powell’s press conference on interest rate guidance. BofA analysts expect Powell to signal a gradual rate-cut approach ahead, potentially indicating a pause in January if economic data meets expectations.
Meanwhile, traders are also confident that the Fed will leave interest rates unchanged at 4.25%-4.50% in January, according to the CME FedWatch tool.
Ahead of the Fed policy decision, the US Dollar (USD) shows a muted price action, with the US Dollar Index (DXY) wobbling near 107.00.
Daily digest market movers: EUR/USD trades quietly with Fed policy in focus EUR/USD trades on the sidelines due to consolidation in the US Dollar ahead of the Fed’s policy decision. The Euro (EUR) is higher across the board on Wednesday but its outlook remains bearish as investors expect the European Central Bank (ECB) to head to the neutral rate, which officials have forecasted around 2%, by the first half of 2025. Traders expect the ECB to reduce interest rates at every meeting till June 2025. Officials are highly concerned about growing economic risks in the Eurozone and are confident that price pressures will sustainably return to the central bank’s target next year. On Tuesday, ECB policymaker and Finnish central bank Governor Olli Rehn said that inflationary pressures stabilizing near the bank’s target of 2% set the stage for further interest rate reduction. Rehn refrained from providing a specific rate cut path and said, “The speed and scale of the rate cuts will be determined in each meeting on the basis of incoming data and comprehensive analysis.” When asked about how the continent will face incoming tariff hikes from the US President-elect Donald Trump administration, Rehn said, “Negotiation is preferable, and the European Union’s (EU) negotiating position can be strengthened by demonstrating in advance that it is ready to take countermeasures if the United States threatens Europe with higher tariffs.”
Euro PRICE Today
The table below shows the percentage change of Euro (EUR) against listed major currencies today. Euro was the strongest against the New Zealand Dollar.
USD
EUR
GBP
JPY
CAD
AUD
NZD
CHF
USD
-0.09%
0.01%
0.05%
0.10%
0.35%
0.39%
0.08%
EUR
0.09%
0.11%
0.15%
0.19%
0.45%
0.49%
0.19%
GBP
-0.01%
-0.11%
0.04%
0.08%
0.34%
0.38%
0.07%
JPY
-0.05%
-0.15%
-0.04%
0.02%
0.28%
0.31%
0.00%
CAD
-0.10%
-0.19%
-0.08%
-0.02%
0.25%
0.30%
-0.01%
AUD
-0.35%
-0.45%
-0.34%
-0.28%
-0.25%
0.04%
-0.27%
NZD
-0.39%
-0.49%
-0.38%
-0.31%
-0.30%
-0.04%
-0.31%
CHF
-0.08%
-0.19%
-0.07%
-0.01%
0.01%
0.27%
0.31%
The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the Euro from the left column and move along the horizontal line to the US Dollar, the percentage change displayed in the box will represent EUR (base)/USD (quote).
Technical Analysis: EUR/USD oscillates around 1.0500
EUR/USD has traded back and forth around the psychological figure of 1.0500 over the last five trading days. The major currency pair faces pressure near the 20-day Exponential Moving Average (EMA), which trades around 1.0535, suggesting that the near-term trend is bearish.
The 14-day Relative Strength Index (RSI) revolves around 40.00. The bearish momentum should trigger if the RSI (14) falls below that level.
Looking down, the two-year low of 1.0330, reached on November 22, will provide key support. Conversely, the December 6 high of 1.0630 will be the key barrier for the Euro bulls.
Pound Sterling (GBP) consolidates near 1.2700 against the US Dollar (USD).
The Federal Reserve (Fed) is expected to cut interest rates by 25 basis points to 4.25%-4.50%.
UK inflation data supports the expectation that the Bank of England (BoE) will keep rates steady at 4.75%.
Market Overview
GBP/USD Consolidation Ahead of Fed Policy The Pound Sterling trades sideways against the US Dollar as markets await the Federal Reserve’s monetary policy decision. A 25-basis-point rate cut is widely anticipated, marking the Fed’s third consecutive reduction.
Investors are keen to assess the FOMC Economic Projections and the dot plot, which will offer insights into the Fed’s future rate path. Recent surveys suggest the Fed may maintain a cautious approach in 2025, with only three rate cuts expected as inflation risks linger.
Impact of UK Inflation Data In the UK, the November Consumer Price Index (CPI) showed annual headline inflation rising to 2.6% YoY, aligning with expectations. Core CPI rose by 3.5%, slightly below estimates but higher than October’s 3.3%.
This data strengthens expectations that the BoE will keep its policy rate unchanged at 4.75% in Thursday’s meeting, likely with an 8-1 vote split. MPC member Swati Dhingra is expected to favor a 25-bps rate cut.
BoE Governor Andrew Bailey’s press conference will be closely watched for clues on potential policy easing in 2025.
Technical Analysis
GBP/USD Near Key Moving Averages
The pair hovers near its 20-day EMA at 1.2815, with immediate resistance at the 200-day EMA around 1.2710.
On the downside, GBP/USD found support near an upward-sloping trendline around 1.2600, traced from the October 2023 low of 1.2035.
Momentum Indicators
The 14-day Relative Strength Index (RSI) oscillates between 40.00 and 60.00, signaling a neutral, sideways trend.
Key Levels to Watch:
Support:
1.2600 (trendline support).
1.2500 (psychological level).
Resistance:
1.2710 (200-day EMA).
Conclusion
The Pound remains in a consolidation phase as markets await crucial updates from both the Fed and BoE. While steady UK inflation strengthens the case for unchanged BoE rates, investor focus will shift to Governor Bailey’s guidance on future policy moves. Similarly, the Fed’s dot plot and projections will be pivotal in shaping USD momentum.
In the near term, GBP/USD could see sideways action within the 1.2600-1.2710 range, barring significant surprises from central bank announcements.
Gold struggles below $2,665, resuming its bearish momentum.
Strengthening US Treasury yields and the US Dollar (USD) weigh on prices.
Market expectations for a “hawkish rate cut” by the Federal Reserve (Fed) keep Gold under pressure.
Gold (XAU/USD) approaches a key support zone near $2,630.
Market Drivers
Rising Yields and Strong US Dollar
Gold’s downside persists as rallying US Treasury yields and a robust Dollar continue to pressure non-yielding assets like Gold.
Economic Resilience and Fed Expectations
Stronger-than-expected US preliminary PMI data points to steady economic growth in Q4, signaling a slower Fed easing cycle in 2025.
Upcoming Retail Sales data for November is expected to show a 0.5% growth, reinforcing the narrative of resilient US consumption.
Hawkish Fed Speculation
Futures markets are pricing in a 25 basis-point rate cut by the Fed on Wednesday, but investors anticipate cautious forward guidance, limiting expectations for aggressive cuts in 2025.
Easing Geopolitical Concerns
Reduced tensions in the Middle East conflict have shifted market focus to US monetary policy, further dampening Gold’s appeal.
Technical Analysis
Bearish Indicators:
Gold continues to retreat after being rejected at the $2,720 resistance last week.
A potential double top and last Thursday’s bearish engulfing candle have strengthened bearish sentiment.
The 4-hour chart shows increasing bearish momentum, with a negative candle supporting the downtrend.
Key Levels to Watch:
Support:
Immediate support lies near $2,630 (December 9 low).
Deeper support is at $2,610, marked by lows from November 25, 26, and December 6.
Resistance:
Upside resistance is at $2,665 (Monday’s high).
Additional resistance is near $2,690 (Friday’s intraday level).
Conclusion
Gold remains under pressure, with rising US Treasury yields, a strong Dollar, and expectations of a cautious Fed outlook driving the bearish trend. Traders should watch the $2,630 support level, as a break lower could open the door to $2,610. Conversely, a rebound above $2,665 could challenge bearish momentum in the short term.
XAU/USD 4-Hour Chart
Interest rates FAQs
What are interest rates?
Interest rates are charged by financial institutions on loans to borrowers and are paid as interest to savers and depositors. They are influenced by base lending rates, which are set by central banks in response to changes in the economy. Central banks normally have a mandate to ensure price stability, which in most cases means targeting a core inflation rate of around 2%. If inflation falls below target the central bank may cut base lending rates, with a view to stimulating lending and boosting the economy. If inflation rises substantially above 2% it normally results in the central bank raising base lending rates in an attempt to lower inflation.
How do interest rates impact currencies?
Higher interest rates generally help strengthen a country’s currency as they make it a more attractive place for global investors to park their money.
How do interest rates influence the price of Gold?
Higher interest rates overall weigh on the price of Gold because they increase the opportunity cost of holding Gold instead of investing in an interest-bearing asset or placing cash in the bank. If interest rates are high that usually pushes up the price of the US Dollar (USD), and since Gold is priced in Dollars, this has the effect of lowering the price of Gold.
What is the Fed Funds rate?
The Fed funds rate is the overnight rate at which US banks lend to each other. It is the oft-quoted headline rate set by the Federal Reserve at its FOMC meetings. It is set as a range, for example 4.75%-5.00%, though the upper limit (in that case 5.00%) is the quoted figure. Market expectations for future Fed funds rate are tracked by the CME FedWatch tool, which shapes how many financial markets behave in anticipation of future Federal Reserve monetary policy decisions.
EUR/USD falls below 1.0500 as the US Dollar stays broadly firm on expectations that the Fed will cut interest rates but deliver hawkish guidance for 2025.
ECB officials see the continuation of the gradual policy-easing cycle as appropriate.
The collapse of German Scholz’s government has paved the way for general elections on February 23.
EUR/USD slides below the psychological resistance of 1.0500 on Tuesday. The major currency pair remains fragile as the US Dollar (USD) gains on expectations that the Federal Reserve (Fed) will adopt a slightly hawkish stance after reducing its key borrowing rates by 25 basis points (bps) to 4.25%-4.50% on Wednesday.
The US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, ticks higher above 107.00.
According to the CME FedWatch tool, traders have priced in a 25 bps interest rate reduction for Wednesday’s policy meeting. The data also shows that the Fed is expected to leave interest rates unchanged in the January meeting.
Analysts at Macquarie said that the Fed’s stance could turn “slightly hawkish” from “dovish” on the assumption that the “recent slowdown in the pace of US disinflation, a lower Unemployment Rate than what the Fed projected in September, and exuberance in US financial markets are contributing to this more hawkish stance.”
In Tuesday’s session, investors will focus on the United States (US) monthly Retail Sales data for November, which will be published at 13:30 GMT. Economists estimate that Retail Sales, a key measure of consumer spending, rose by 0.5%, faster than the 0.4% growth in October.
Daily digest market movers: EUR/USD drops as US Dollar moves higher
EUR/USD drops after facing pressure near the key resistance of 1.0530 in Tuesday’s European session. The major currency pair struggles to break above the aforementioned hurdle as its broader outlook of the Euro (EUR) is bearish amid firm expectations that the European Central Bank (ECB) will reduce interest rates at every meeting until June 2025.
The ECB has delivered a 100-bps interest rate reduction this year and is expected to loosen its monetary policy further by a similar margin next year, given that officials are confident about Eurozone inflation returning to the central bank’s target of 2%. Also, ECB policymakers have become worried about growing economic risks due to weak demand and potential tariffs from incoming US President-elect Donald Trump.
After the decision to cut rates on Thursday, a number of ECB officials, including President Christine Lagarde, have agreed to the need for more interest rate cuts. On Monday, Lagarde said that the ECB “will cut rates further if incoming data confirm that disinflation is on track”. Lagarde’s dovish remarks on the policy outlook were backed by the assumption that “inflation momentum for services has dropped steeply recently.”
ECB executive board member Isabel Schnabel, who remains an outspoken hawk, also agreed to a gradual removal of policy restrictions. “Lowering policy rates gradually towards a neutral level is the most appropriate course of action,” Schnabel said at an event in Paris on Monday. However, she warned that the ECB should remain vigilant to any “shocks that have the capacity to destabilize inflation expectations.”
In the European session on Tuesday, ECB policymaker and Governor of the Bank of Finland also delivered dovish remarks on interest rates. Rehn said, “The direction of our monetary policy is clear” as “inflation is more clearly starting to stabilize at the 2% target”. Rehn refrained from guiding a specific interest rate path saying that “the speed and scale of rate cuts will be determined in each meeting”.
On the political front, the German parliament has passed the no-confidence motion against Chancellor Olaf Scholz’s government, which paved the way for general elections on February 23. According to market expectations, conservative challenger Friedrich Merz would defeat Scholz.
On the economic data front, the German IFO sentiment surveys for December have shown that Business Climate and Expectations at 84.7 and 84.4, respectively, have come in weaker than expected. IFO Current Assessment, an indicator of current conditions and business expectations, surprisingly rose to 85.1 from 84.3 in November.
Euro PRICE Today
The table below shows the percentage change of Euro (EUR) against listed major currencies today. Euro was the strongest against the Australian Dollar.
USD
EUR
GBP
JPY
CAD
AUD
NZD
CHF
USD
0.20%
-0.08%
-0.18%
0.22%
0.44%
0.34%
0.27%
EUR
-0.20%
-0.29%
-0.42%
0.02%
0.24%
0.14%
0.06%
GBP
0.08%
0.29%
-0.10%
0.31%
0.52%
0.42%
0.36%
JPY
0.18%
0.42%
0.10%
0.41%
0.63%
0.52%
0.47%
CAD
-0.22%
-0.02%
-0.31%
-0.41%
0.21%
0.12%
0.05%
AUD
-0.44%
-0.24%
-0.52%
-0.63%
-0.21%
-0.10%
-0.18%
NZD
-0.34%
-0.14%
-0.42%
-0.52%
-0.12%
0.10%
-0.07%
CHF
-0.27%
-0.06%
-0.36%
-0.47%
-0.05%
0.18%
0.07%
The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the Euro from the left column and move along the horizontal line to the US Dollar, the percentage change displayed in the box will represent EUR (base)/USD (quote).
Technical Analysis: EUR/USD wobbles around 1.0500
EUR/USD trades around the psychological figure of 1.0500, where the pair has been hovering for the last four trading days. The major currency pair faces pressure near the 20-day Exponential Moving Average (EMA), which trades around 1.0540, suggesting that the near-term trend is bearish.
The 14-day Relative Strength Index (RSI) revolves around 40.00. The bearish momentum should trigger if the RSI (14) falls below 40.00.
Looking down, the two-year low of 1.0330 will provide key support. Conversely, the 20-day EMA will be the key barrier for the Euro bulls.
Silver prices drop to a two-week low of $30.30 during Tuesday’s European session.
The decline comes as US bond yields extend gains ahead of the Federal Reserve’s (Fed) policy decision on Wednesday.
The Fed is expected to reduce rates by 25 basis points (bps) to 4.25%-4.50%, but its outlook may indicate fewer rate cuts in 2025.
Market Drivers
Rising US Bond Yields
10-year Treasury yields climb for the seventh consecutive day, nearing 4.42%.
Higher bond yields increase the opportunity cost of holding non-yielding assets like Silver, pressuring prices further.
Hawkish Fed Expectations
According to a Bloomberg survey, the Fed is expected to implement a gradual rate-cutting cycle, with three rate cuts projected in 2025.
Economists are focusing on rising inflation risks over potential employment concerns, influencing the Fed’s cautious stance.
US Dollar Strength
The US Dollar Index (DXY) gains traction around 107.00, adding to Silver’s downside pressure.
Fed Chair Powell’s Press Conference
Investors await insights from Powell on the potential impact of policies from incoming US President Donald Trump, including immigration, trade, and tax measures, on inflation and future interest rates.
Technical Analysis
Current Trend: Silver prices remain under pressure after breaking below the 20-day Exponential Moving Average (EMA) at $31.00.
RSI Reading: The 14-day Relative Strength Index (RSI) is range-bound between 40.00-60.00, suggesting limited directional momentum.
Key Levels to Watch:
Support: The upward-sloping trendline near $29.50, originating from the February low of $22.30, is critical for sustaining the current trend.
Resistance: Horizontal resistance at $32.50, derived from the May 21 high, remains a significant barrier to upside moves.
Conclusion
Silver prices are likely to remain subdued in the near term, with rising bond yields and Fed policy expectations adding downward pressure. Investors will closely monitor Powell’s remarks for clues on future monetary policy, inflationary trends, and their potential impact on Silver. A break below $29.50 could signal further declines, while a recovery above $32.50 might revive bullish momentum.
The Norwegian Central Bank (Norges Bank) is expected to maintain its current policy stance at its upcoming meeting on Thursday, resisting calls for an earlier rate cut. According to Commerzbank FX analyst Antje Praefcke, the first interest rate reduction is still more likely to happen in March 2025, rather than January.
Key Insights
Balancing Trade-Offs
Norges Bank’s primary concern is finding the right balance:
Cutting rates too early could prolong inflation above the target.
Keeping policy too tight risks unnecessary economic contraction.
Policymakers emphasized the importance of assessing more data before deciding, indicating a cautious approach to rate adjustments.
Economic Developments and Inflation Trends
The disinflation process has slowed.
Business activity is expected to improve slightly during the winter and Q1 2025, except in sectors like construction and retail.
Wage growth forecasts for 2025 have been revised upwards from 4.3% to 4.5%, and capacity utilization issues remain consistent among firms.
Currency Performance
The Norwegian krone (NOK) had appreciated since the last interest rate meeting but has since returned to previous levels.
What to Expect on Thursday
Rate Path Guidance: Norges Bank is likely to signal that the next rate move will be a cut, but without committing to a January reduction.
Outlook for March: The positive outlook for employment, wage growth, and recent inflation trends supports delaying the start of the rate-cutting cycle until March 2025.
Conclusion
Given the economic backdrop and the cautious tone of policymakers, Norges Bank is unlikely to shift from its neutral stance to rate cuts immediately. March 2025 remains the most probable starting point for the easing cycle. Market participants should keep an eye on Thursday’s statement for more clarity on the central bank’s forecasts and future rate path.
The British Pound (GBP) strengthened against the Euro (EUR) following the release of UK labor market data, which points to a more hawkish stance from the Bank of England (BoE), according to ING’s FX analyst Francesco Pesole.
Key Takeaways
Stronger-than-Expected Employment Data
UK employment grew by 173k in October on a 3M/3M basis, exceeding expectations of just 5k.
While this measure can be volatile and less reliable, it still reflects resilience in the labor market.
Wage Growth Accelerates
The key focus for the BoE is the sharp acceleration in wages, with both headline weekly earnings and ex-bonus measures rising above 5.0%.
Notably, wage growth is concentrated in the private sector, where pay surged at a 12% month-on-month annualized rate, underscoring strong ties to broader economic trends.
Mixed Signals in the Jobs Market
Despite robust wage growth, signs of cooling persist: job vacancies remain below pre-COVID levels, suggesting some slack in the labor market.
Implications for EUR/GBP
The hawkish wage data is likely to strengthen the BoE’s position, amplifying policy divergence with the dovish European Central Bank (ECB).
Short-term outlook: EUR/GBP is expected to stay below 0.830, with risks leaning further to the downside as the BoE is likely to hold rates steady this week while emphasizing a cautious policy path.
Conclusion
Today’s data provides BoE hawks with fresh arguments for maintaining a vigilant stance on inflation. This divergence between the BoE and the ECB bolsters the GBP, keeping EUR/GBP under pressure in the near term. Traders should monitor ongoing labor market trends and BoE messaging for further cues.
WTI crude oil prices are under pressure, falling 0.7% on Monday and flirting with the critical $70 mark. Last week, OPEC+ actions helped stabilize prices above this level by postponing a “voluntary” production increase by key members for another quarter, as anticipated by market observers.
Key Insights
OPEC+ Stabilization Strategy
OPEC+ appears focused on preventing a steep price decline, but any cracks in cartel unity could trigger a collapse.
Large producers tied to production commitments face a dilemma, losing market share—particularly to the US, where production is hitting record highs.
US Oil Production at Record Levels
US production surged to 13.63 million barrels per day (bpd) last week, the highest ever recorded.
Enhanced production efficiency allows the US to achieve higher output with just 482 active rigs, far below previous cycle peaks.
Market Share Challenges
Retaking market share from the US is politically and economically more complex than targeting other regions like Latin America or Southeast Asia.
This has led to speculation that OPEC+ may be pursuing a “managed decline” strategy for production.
Technical Outlook
Resistance: WTI has repeatedly failed to sustain gains above its 50-day moving average, hovering just above $70.
Support: The $67 level has provided consistent support since mid-year, preventing steeper declines.
Trend: WTI remains in a bearish pattern, trading below both the 50- and 200-week moving averages, indicating sustained downward momentum.
Year-End Price Dynamics
The final trading weeks of the year could amplify bearish trends. Tax-loss harvesting by traders could drive prices lower in an environment of reduced liquidity. A breakdown below the $67 support level could lead to broader capitulation. However, such a decline might also attract value-driven buyers, potentially setting the stage for an uptrend in 2024.
Conclusion
WTI crude faces a critical test as 2023 draws to a close. OPEC+ actions may provide temporary stability, but structural challenges, including US production dominance and bearish technical indicators, signal continued volatility. The coming weeks will be crucial in determining whether oil finds a new floor—or sets the stage for a rebound next year.
