The EUR/USD exchange rate continued its downtrend as risk sentiment among investors strengthened the US dollar. The pair fell to 1.0395 on Tuesday morning, after hitting a year-to-date high of 1.1200.
The single currency retreated despite Spain publishing strong inflation data, with the headline CPI rising from 0.2% in November to 0.4% in December, reflecting an annual inflation rate of 2.8%, above expectations of 2.6%. These figures point to a worsening inflation trend in Europe, which could further complicate future decisions by the European Central Bank, which has already cut interest rates four times this year, with more cuts hinting at the future.
The economic outlook shows no major economic data expected on the final day of the year, except for the US housing price index, which will offer additional insights into housing inflation. These figures are unlikely to significantly impact the pair’s movement, given the low trading volumes expected.
EUR/USD Technical Analysis
The EUR/USD pair is showing strong bearish momentum, with the US Dollar Index jumping to 108.25. The pair formed a double top pattern at 1.1200 with a neckline at 1.0446, only to recently fall below this line, suggesting a continuation of the decline in the coming weeks. The bearish crossover between the 100-week and 50-week EMAs also suggests a continuation of the downtrend.
In short, the pair is expected to continue declining in the coming days, amid expectations of a divergence in the ECB’s policy from the Fed, which has indicated only two rate cuts in 2024, while the ECB is likely to continue cutting rates next year.
EUR/USD Forecast for End of 2024: Bearish Performance
The EUR/USD pair is expected to end 2024 near the 1.0400 level, trading in a very tight range on the last day of the year. Although the euro is not among the worst performing currencies, it has seen a decline of around 6% against the US dollar (USD), which has been one of the main winners in the market this year after posting notable gains against all major currencies.
The results of the US presidential election, especially Donald Trump’s victory, are the main factors that have strengthened the US dollar. Since the beginning of Trump’s second term, his promises to impose tariffs on imports from China, Canada and Mexico have increased concerns about rising inflation. This, coupled with the dovish stance adopted by the Federal Reserve in its last meeting, where it reduced its expectations for interest rate cuts in 2025, gave the dollar an additional boost at the end of the year.
The better performance of the US economy compared to its international peers also reinforces the positive outlook for the dollar. Although US stock markets will continue to operate, bond markets will close early, with little movement expected before the New Year’s holiday, with markets resuming on January 2.
Short-term technical outlook for the EUR/USD pair:
The pair is trading in a narrow range around the daily opening level, and the general trend is showing a bearish bias. The daily chart shows that the 20-day simple moving average (SMA) is moving lower, placing a dynamic resistance around the 1.0470 level. The 100- and 200-day moving averages are also supporting the downside, reflecting a strong selling bias. On the other hand, although the technical indicators have lost their directional strength, they remain within negative territory.
GBP/USD Today’s Actions and Future Move Expectations
The GBP/USD pair recorded a slight improvement during Tuesday’s trading in European trading hours, rising to the 1.2529 level. Despite this slight increase, the pair is still moving within a descending channel on the chart, reflecting the continued bearish bias in the market in general. However, it is worth noting that the pair is currently above the upper boundary of this channel, which raises some temporary optimism about the upward move, although this does not constitute a change in the overall trend, which is still bearish. The market is still suffering from negative pressure.
Technically, the pair is trading below its 9- and 14-day exponential moving averages (EMAs), reflecting weak short-term bullish momentum. Price action below these moving averages suggests that the market is facing resistance at these levels, reinforcing the idea that the overall trend is still bearish. In case of a strong breakout of the moving averages, this may indicate a possible shift in the trend from bearish to bullish, which requires careful monitoring of the markets in the coming period.
In addition, when looking at the 14-day Relative Strength Index (RSI), we notice that it is still below the 50 level, reflecting the continuation of the bearish bias. This indicates that the bullish momentum is weak and reinforces expectations that the market may continue the downward trend. Despite the slight improvement in the price we are witnessing, the relative strength indicators continue to confirm the continuation of the selling pressure.
On the negative side, the pair is currently testing the 1.2540 level, which represents the upper limit of the descending channel. If the pair continues to return to the inside of the descending channel after testing this level, the bearish bias may be further strengthened.
