Euro consolidates near highs amid a favourable risk sentiment

• The Euro maintains a bid tone with the Dollar vulnerable on Fed-easing hopes. 
• Cooling US inflation and weaker economic growth fuel hopes of interest rate cuts in March.
• ECB-Fed divergence is likely to support the pair until Eurozone data is released in the first week of 2024.
  ​​​

The Euro (EUR) maintains its positive tone during Thursday’s European trading session. The pair is contained within a tight range above 1.1100, set for its third consecutive weekly rally, with the Dollar drifting to fresh mid-term lows amid heightened hopes that the Fed will start cutting interest rates in March.

US macroeconomic data released last week confirmed the narrative of cooler inflation and a softening economic growth, the soft-landing theory that will allow the Fed to retrace the monetary tightening path.

In the absence of key fundamental releases this week, today´s US Weekly Jobless Claims and Existing Home Sales, which are expected to have bounced up in November, might provide some support to an ailing US Dollar.

Daily digest market movers: US Dollar dives with investors bracing for Fed cuts in 2024

• The Euro consolidates at five-month highs above 1.1100, with the US Dollar weighed on hopes of Fed rate cuts.
   
• US PCE Prices Index data released last week showed that inflation is decelerating at a faster-than-expected pace
   
• The US Gross Domestic Product was revised to a 4.9% growth in the third quarter, down from the 5.2% previously estimated
   
• The calendar is light this week and investors remain focused on last week’s figures to feed hopes that the Fed will start cutting rates in early 2024.
   
• Futures markets are pricing nearly 90% chances of Fed cuts in March, and 150 bps cuts in the whole year, according to the CME Group Fed Watch Tool.
   
• In contrast, the ECB struck a more hawkish tone after its December policy meeting, defending the “higher for longer” view, which is underpinning support for the Euro.

Technical Analysis: Euro consolidates gains above 1.1100

The Euro maintains its bullish bias with price action standing comfortably at five-month highs above 1.1100. The US Dollar weakness, with the Dollar Index trading at its lowest level since late July – and more than 6% below November´s peak – is acting as a tailwind for the Euro.

Technical indicators are positive, although the overbought levels reflected in the four-hour RSIs suggest that consolidation or even a certain retracement might be ahead.

On the upside, immediate resistance lies at the July 27 high, 1.1145, which closes the path toward the 2023 high, at 1.1280. Support levels are at 1.1100 ahead of a previous resistance area, at 1.1010 and 1.0930.