Daily Technical Analysis EUR/USD: Pair Plunges and Falls Behind 1.05

The euro’s upward momentum dissipated on Tuesday, pushing the EUR/USD pair below the 1.0500 level as traders prepared for the final Federal Reserve meeting of 2024. European data releases remain sparse this week, leaving Fiber traders navigating key U.S. economic data as their primary focus.

Euro markets largely overlooked the multiple appearances by European Central Bank officials earlier in the week, despite December’s PMI numbers in Europe slightly beating expectations. However, services PMI figures across the European Union remain in contraction territory, reflecting deepening concerns about the economic slowdown in Europe. These factors continue to unsettle investors and weigh on business sentiment.

In contrast, U.S. retail sales data revealed a 0.7% month-on-month increase, raising doubts among investors about whether the Federal Reserve will need to pursue an aggressive rate-cutting strategy. This is especially relevant given the recent rebound in U.S. inflation indicators. Despite this, markets remain overwhelmingly confident in a third Fed rate cut on Wednesday, with CME’s FedWatch tool indicating a 95% probability of a 25 basis point reduction.

EUR/USD Daily Technical Analysis for December 18th

The EUR/USD daily chart shows a period of stabilization slightly above the 1.0450 level, following the pair’s sharp decline from late October highs near 1.1000. This recent stabilization reflects investor anticipation of the Fed’s planned quarter-point rate cut on Wednesday, which has introduced uncertainty regarding the U.S. dollar’s direction.

The price remains constrained by the 50-day exponential moving average (EMA) at 1.0658, while the long-term downtrend persists, underscored by the bearish 200-day EMA at 1.0809. A decisive break below the key support at 1.0450 could prompt bears to retest the psychological 1.0400 level, which served as critical support in late November.

The MACD indicator on the lower section of the chart reveals a slowing of downward momentum, as the MACD line flattens and approaches a potential bullish crossover with the signal line. However, the histogram remains in negative territory, indicating that bullish attempts will likely face significant resistance.

Should the Fed announce a rate cut with a dovish tone, the dollar could weaken further, potentially enabling the EUR/USD pair to rebound toward 1.0600 and test the 50-day EMA resistance. Conversely, a hawkish surprise could reinforce dollar strength, triggering renewed selling pressure on EUR/USD and reopening the path toward this year’s lows.

Traders are expected to remain cautious ahead of the Fed’s decision, which may keep the pair confined within a narrow range in the short term.