Euro is steady at four-month highs on calm end-of-year trading

• The Euro keeps crawling higher on risk appetite and a weak US Dollar. 
• A softer US economic growth outlook and easing inflation pressures are boosting hopes of Fed cuts.
• In the absence of key data, risk appetite might buoy the Euro before key Eurozone figures are released.

The Euro (EUR) is trading with a mild bullish tone in Wednesday’s European session, following a long Christmas weekend. The pair is moving in the mid-range of 1.1000 with investors celebrating the end of the global tightening cycle, which is expected to support economic growth and lessen the risks of a deep recession next year.

Data released in the US last week revealed that inflation is ebbing fast. The Personal Consumption Expenditures (PCE) Prices Index, the Fed´s favorite inflation gauge, declined to its lowest reading in nearly three years.

Beyond that, third quarter US Gross Domestic Product was revised down to a 4.9% growth from the same period last year, which was lower than previous estimations of 5.2%.

These figures confirm the soft landing rhetoric of lower growth and receding inflation that fuels prospects that the US central bank will start cutting rates in early 2024. This is boosting investors’ appetite for risk and weighing the US Dollar across the board.

Daily digest market movers: Hopes of Fed cuts are hammering the US Dollar

• The Euro remains steady at four-month highs as the Dollar keeps heading south on hopes of Fed cuts.
   
• Last week, the US PCE Price Index declined to 2.6% year-on-year from the downwardly revised 2.9% in October.
   
• The Core PCE Prices Index, which removes the impact of seasonal products like food and energy, showed a milder decline, to 3.2% from 3.4% in October. Still, it was lower than the 3.3% expected and well below the 5.6% peak seen in April 2022.
   
• The Core PCE Prices Index, which removes the impact of seasonal products like food and energy, is seen growing steadily at 0.2% and down to 3.3% from 3.5% in the year.
   
• These figures have cemented investors’ hopes of Fed rate cuts in early 2024. Futures markets are pricing more than 70% chances of a quarter-point rate cut in March and 150 bps cuts in 2024, according to the CME Group FedWatch Tool.
   
• US Treasury yields remain declining, with the benchmark 10 yield at 3.85%, more than 100 pips below the 5% peak reached in late October. This is adding negative pressure on the US Dollar.
   
• The calendar is light this week and the positive mood might support the Euro before the focus turns to key Eurozone macroeconomic releases.

Technical Analysis: Euro remains buoyed with 1.1065 and 1.1100 in sight

The Euro is trading with a moderately positive tone during a calm trading session on Wednesday. The pair remains supported above the 1.1000 level, with technical indicators pointing higher.

The US Dollar Index remains depressed below a strong resistance area at 101.80, and pushing towards multi-month lows at 101.40. A successful move below here would give a fresh boost to the Euro.

The technical picture, as mentioned earlier remains positive, with price action well above the main SMAs and oscillators still below overbought levels, suggesting the possibility of further appreciation.

Immediate resistance levels lie at 1.1065, which closes the path towards the 78.6% Fibonacci retracement of the third quarter´s sell-off, in the vicinity of 1.1100 and the July 27 high, at 1.1145.

Supports are the mentioned 1.1000 and 1.0930.