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EUR/USD Struggles Ahead of ECB as Fed Keeps US Interest Rate on Hold

Article By: ,  Strategist
January 29, 2025 9:20 PM

US Dollar Outlook: EUR/USD

EUR/USD trades near the weekly low (1.0382) ahead of the European Central Bank (ECB) meeting as the Federal Reserve keeps the US benchmark interest rate at 4.25% to 4.50%.

EUR/USD Struggles Ahead of ECB as Fed Keeps US Interest Rate on Hold

EUR/USD seems to be reversing ahead of the December high (1.0630) as it carves a series of lower highs and lows, and the exchange rate may struggle to retain the advance from the monthly low (1.0178) as the Federal Open Market Committee (FOMC) insists that ‘we do not need to be in a hurry to adjust our policy stance.’

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It seems as though the Fed will stick to the sidelines over the coming months as Chairman Jerome Powell emphasizes that the central bank remains committed to ‘achieving our 2% inflation goal sustainably,’ but the ECB may continue to shift gears as the Governing Council acknowledges that ‘the disinflation process is well on track.’

Euro-Area Economic Calendar

In turn, the ECB is expected to deliver another 25bp rate-cut at its first meeting for 2025, and more of the same from President Christine Lagarde and Co. may fuel the recent weakness in EUR/USD as the central bank pursues a less-restrictive policy.

With that said, EUR/USD may continue to give back the advance from the monthly low (1.0178) should the ECB prepare European households and businesses for lower interest rates, but the exchange rate may stage further attempts to test the December high (1.0630) should it snap the bearish price series from the start of the week.

EUR/USD Chart – Daily

Chart Prepared by David Song, Senior Strategist; EUR/USD on TradingView

  • EUR/USD carves a series of lower highs and lows to register a fresh weekly low (1.0382), with a move below 1.0370 (38.2% Fibonacci extension) bringing 1.0200 (23.6% Fibonacci retracement) on the radar.
  • Failure to defend the monthly low (1.0178) may push EUR/USD towards parity, but the recent weakness in the exchange rate may turn out to be temporary should it hold above 1.0370 (38.2% Fibonacci extension).
  • Need a move back above the 1.0448 (2023 low) to 1.0480 (100% Fibonacci extension) zone for EUR/USD to snap the bearish price series, with a breach above the monthly high (1.0533) opening up the 1.0580 (78.6% Fibonacci extension) to 1.0610 (38.2% Fibonacci extension) region.

Additional Market Outlooks

USD/CAD Unfazed by BoC Rate-Cut Ahead of Fed Decision

AUD/USD Susceptible to Negative Slope in 50-Day SMA

USD/JPY Outlook Hinges on Federal Reserve Rate Decision

GBP/USD Breaks Above Weekly Range to Eye Monthly High

--- Written by David Song, Senior Strategist

Follow on Twitter at @DavidJSong

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