EURUSD: German Political Issues and An ECB Meeting to Consider
It’s only been just under 3 weeks since EURUSD hit two year lows at 1.0331 on November 22nd yet it seems like a lot has happened in that short period, including EURUSD rebounding quite impressively to touch 1.0630 on Friday 6th December.
Now however, that short squeeze from the lows has cooled as the focus shifts to on-going political problems in France and the prospect of a no confidence vote in Germany on the leadership of the current Chancellor Olaf Scholz.
Not only that, tomorrow sees the release of the final ECB interest rate decision of 2024 at 1315 GMT, which is then followed by the ECB press conference led by Madame Lagarde at 1345 GMT. Both events are likely to be critical to the direction of EURUSD moving forward into the end of the year.
The prevailing market consensus points to a 25 basis point (0.25%) interest rate cut from the ECB. However, a smaller number of analysts have suggested the possibility of a 50 basis point (0.50%) adjustment, though this view appears less widespread. Recent commentary from policymakers has shown that there seems to be a split between those wanting to be more proactive cutting interest rates to give the Eurozone economy a much-needed boost, and those who are reluctant to cut rates until they see that EU inflation is fully under control.
The tone of ECB President Lagarde's comments during the press conference could be significant for FX traders. They will likely focus on whether she signals the possibility of further rate cuts during the ECB's first-quarter 2025 meetings or adopts a more cautious stance, emphasizing the need for additional inflation trend data before making decisions.
The Technical Outlook for EURUSD:
November was a negative month for EURUSD, which saw the cross fall from the 1.0935 November 5th high to the 1.0331 November 22nd low, a move of over 5%, as the US election result was digested by markets.
It might be argued, the latest rally from that November monthly downside extreme back to Friday December 6th high at 1.0630, has gone some way to unwind over-extended downside conditions, in place after the sharp decline, back towards a more neutral balanced position, ahead of the ECB.
This may indicate trader uncertainty and a squaring of positions, ahead of such an important news event.
The market's response to the ECB's announcement and President Lagarde's subsequent press conference will be closely monitored, as investors assess the potential implications for the future direction of EURUSD.
So, moving forward what are some potential levels to monitor around the ECB announcement and during the press conference?
EURUSD Support and Resistance Levels:
Support:
To the downside, there is a possible support focus at 1.0444/60, which is a combination of the 61.8% Fibonacci retracement of November/December strength and December 2nd session low.
While there is no guarantee that daily closing breaks of this area will resume what has been a downtrend pattern of lower highs/lower lows since September 25th, closes under this support may see increased selling pressure and further declines towards 1.0331, the November monthly low.
Resistance:
To the upside, there is a possible resistance area marked by 1.0630/37, which equals the December 6th failure high and trendline connection highs dating back to November 18th.
While breaks of similar resistance points have historically led to further price strength, past performance does not guarantee future results. If a break occurs, it could pave the way for further gains toward 1.0772—the 50.0% retracement resistance of the September-November decline. However, this outcome remains contingent on broader price trends.
The material provided here has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Whilst it is not subject to any prohibition on dealing ahead of the dissemination of investment research we will not seek to take any advantage before providing it to our clients.
Pepperstone doesn’t represent that the material provided here is accurate, current or complete, and therefore shouldn’t be relied upon as such. The information, whether from a third party or not, isn’t to be considered as a recommendation; or an offer to buy or sell; or the solicitation of an offer to buy or sell any security, financial product or instrument; or to participate in any particular trading strategy. It does not take into account readers’ financial situation or investment objectives. We advise any readers of this content to seek their own advice. Without the approval of Pepperstone, reproduction or redistribution of this information isn’t permitted.
Now however, that short squeeze from the lows has cooled as the focus shifts to on-going political problems in France and the prospect of a no confidence vote in Germany on the leadership of the current Chancellor Olaf Scholz.
Not only that, tomorrow sees the release of the final ECB interest rate decision of 2024 at 1315 GMT, which is then followed by the ECB press conference led by Madame Lagarde at 1345 GMT. Both events are likely to be critical to the direction of EURUSD moving forward into the end of the year.
The prevailing market consensus points to a 25 basis point (0.25%) interest rate cut from the ECB. However, a smaller number of analysts have suggested the possibility of a 50 basis point (0.50%) adjustment, though this view appears less widespread. Recent commentary from policymakers has shown that there seems to be a split between those wanting to be more proactive cutting interest rates to give the Eurozone economy a much-needed boost, and those who are reluctant to cut rates until they see that EU inflation is fully under control.
The tone of ECB President Lagarde's comments during the press conference could be significant for FX traders. They will likely focus on whether she signals the possibility of further rate cuts during the ECB's first-quarter 2025 meetings or adopts a more cautious stance, emphasizing the need for additional inflation trend data before making decisions.
The Technical Outlook for EURUSD:
November was a negative month for EURUSD, which saw the cross fall from the 1.0935 November 5th high to the 1.0331 November 22nd low, a move of over 5%, as the US election result was digested by markets.
It might be argued, the latest rally from that November monthly downside extreme back to Friday December 6th high at 1.0630, has gone some way to unwind over-extended downside conditions, in place after the sharp decline, back towards a more neutral balanced position, ahead of the ECB.
This may indicate trader uncertainty and a squaring of positions, ahead of such an important news event.
The market's response to the ECB's announcement and President Lagarde's subsequent press conference will be closely monitored, as investors assess the potential implications for the future direction of EURUSD.
So, moving forward what are some potential levels to monitor around the ECB announcement and during the press conference?
EURUSD Support and Resistance Levels:
Support:
To the downside, there is a possible support focus at 1.0444/60, which is a combination of the 61.8% Fibonacci retracement of November/December strength and December 2nd session low.
While there is no guarantee that daily closing breaks of this area will resume what has been a downtrend pattern of lower highs/lower lows since September 25th, closes under this support may see increased selling pressure and further declines towards 1.0331, the November monthly low.
Resistance:
To the upside, there is a possible resistance area marked by 1.0630/37, which equals the December 6th failure high and trendline connection highs dating back to November 18th.
While breaks of similar resistance points have historically led to further price strength, past performance does not guarantee future results. If a break occurs, it could pave the way for further gains toward 1.0772—the 50.0% retracement resistance of the September-November decline. However, this outcome remains contingent on broader price trends.
The material provided here has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Whilst it is not subject to any prohibition on dealing ahead of the dissemination of investment research we will not seek to take any advantage before providing it to our clients.
Pepperstone doesn’t represent that the material provided here is accurate, current or complete, and therefore shouldn’t be relied upon as such. The information, whether from a third party or not, isn’t to be considered as a recommendation; or an offer to buy or sell; or the solicitation of an offer to buy or sell any security, financial product or instrument; or to participate in any particular trading strategy. It does not take into account readers’ financial situation or investment objectives. We advise any readers of this content to seek their own advice. Without the approval of Pepperstone, reproduction or redistribution of this information isn’t permitted.
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