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Asset Watch
Thursday, December 07, 2023
Investors are currently factoring in potential interest rate cuts by several central banks, notably the European Central Bank (ECB). This trend is behind the recent stability observed in the US dollar against other currencies. Investors are expecting a more accommodative monetary policy from the ECB, with projections indicating a reduction in European interest rates in the first meeting of the central bank in 2024, followed by additional cuts throughout the year, amounting to approximately 125 basis points.
The European Central Bank has various reasons for considering interest rate cuts, including the decline of the CPI headline YoY below the threshold of 3%, coupled with a decrease in energy prices that contributes to pushing inflation levels further down. Additionally, the weak performance of European purchasing managers’ indicators for the manufacturing sector is putting pressure on the Central Bank to normalize its monetary policy, aiming to mitigate the negative effects of the current tight policy that is pushing the European economy toward a recession.
Tomorrow, the markets are eagerly awaiting the US jobs report for November, which is expected to provide more clarity to investors regarding the performance of the US labor market. This report will offer insights into consumer spending levels and inflation trends.
Chart source ADSS Platform
On the twenty-ninth of last November, the EUR/USD rallied to a multi-month high then retraced as some traders opted to take profits. From that point until this week, the pair has seen a depreciation of approximately 2% in its value, with prices closing below the 200-day moving average.
Currently, the pair is navigating within the trading zone of 1.0789 – 1.0656 and it could be on its way for a test of the low end of that zone. Nonetheless, the support level located at the 50-day simple moving average should be considered.
Conversely, a daily close above the high end of the zone suggests a lack of sufficient momentum for further decline. This could encourage some traders to rally the pair towards 1.0873. That said, the resistance level marked by the 200-day moving average should be kept in focus.
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