EURUSD Looks to Support After Weak Bounce

The EURUSD exchange rate has seen little strength in a recent bounce and could head lower. 

EURUSD – Daily Chart

EURUSD – Daily Chart

EURUSD trades at 1.0890 and has support at 1.0726 for another move lower. The break of the uptrend line also hints at weakness. 

The European Central Bank was set to release its monetary policy accounts at 8:30 pm HKT. That could spur some movement into the weekend. 

Traders are also looking at a quicker move to rate cuts in Europe than in the US as the ECB looks to prop up a flagging economy. ECB President Christine Lagarde has indicated that interest rate cuts could be an option by the summer. 

During a discussion at the Bloomberg House in Davos, Lagarde was questioned about fellow policymakers’ support for rate cuts. While accepting that the ECB’s interest rates have likely peaked, Lagarde noted the bank’s reliance on economic data, noting ongoing uncertainties and volatile indicators. 

Lagarde warned of premature optimism in markets, which could hurt the ECB’s inflation control efforts. “Too optimistic markets don’t help the ECB’s inflation fight,” the ECB Governor said. 

She said that although the bank is on track for its 2% inflation target, it would be too early to declare victory until it can sustain current levels.  

“We are optimistic that we have a credible prospect of a return of inflation to 2% in 2025 but a lot still needs to go well for that to happen,” she added. 

Lagarde said the ECB closely follows several economic indicators, including wages, profit margins, energy prices, and supply chains. The eurozone unemployment rate was steady at 6.4% in November, which matched the record low set in June. The third quarter also saw a record 5.4% year-on-year increase in wage growth, which has some economists worried about second-round effects on inflation. 

An inflation number from the UK this week had investors rattled, and there is the potential for oil prices to increase if the Middle East situation escalates.

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