EUR/USD daily chart
Since the retreat from 1.1000 at the end of last month, the pair was caught in and around the 100-day (red line) and 200-day (blue line) moving averages. But after the dollar slumped following the FOMC meeting yesterday, buyers took the call to action to break above the latter and that is seeing the bias in the pair shift to being more bullish.
The dollar softness today is extending, with the pair trading up 0.3% to 1.0910 currently. However, the euro side of the equation will also come into play later on with the ECB coming up next.
As things stand, traders are pricing in a whopping 154 bps worth of rate cuts by the ECB for next year. The odds of a March rate cut have moved up to ~77% with nearly 50 bps priced in already for April. In other words, the Fed’s dovishness has set up more expectations of a quicker move by other major central banks going into next year.
That being said, it is important to remember that not every economy is the same. The so-called disinflation process seems to be farther along in the US than the Eurozone, especially when you consider the most recent PMI data takeaways here.
However, there is also the narrative that the euro area economy is slowing down much faster than the US. And so, if the ECB wants to, they can opt to spin the rhetoric accordingly and focus on that to tee up rate cuts following the timeline priced in by markets at the moment.
EUR/USD may be primed for a retest of the 1.1000 mark based on the technicals. But the euro side of the equation could offset the dollar weakness that we are seeing at the moment, keeping the balance of flows more balanced towards the end of the week.