EUR/USD Price Forecast: Upside still appears limited by 1.0600

• EUR/USD added to recent gains beyond the 1.0500 barrier.
• The US Dollar extended its corrective decline amid lower yields.
• Chair Powell reiterated that the economy is in a “good shape”.

EUR/USD managed to gain further ground on Wednesday, adding to the advanced recorded in the previous day and pushing above the 1.0500 hurdle. This recovery eased some pressure from recent lows, thanks in part to a softer US Dollar (USD) and reduced political uncertainty in France, even as French PM Michel Barnier faces a likely loss in the imminent no-confidence vote.

Fed and ECB in the Spotlight

Monetary policy remains front and centre. On November 7, the Federal Reserve (Fed) cut its benchmark interest rate by 25 basis points, bringing it to a range of 4.50%-4.75%. The move reflects the Fed’s continued push to tame inflation, but cracks are beginning to show in the US labour market, despite unemployment remaining historically low.

Fed Chair Jerome Powell struck a cautious tone, suggesting further rate cuts might not be needed for now. This tempered market speculation about additional easing in December, offering some stability to the USD. FOMC Governor Michelle Bowman echoed this sentiment, emphasising a patient approach to future rate adjustments.

Still around Chief Powell, he expressed confidence at an event on Wednesday that the incoming administration would not interfere with his role as the leader of the US central bank. He also noted that the economy's recent strong performance gives the Fed the flexibility to take a more cautious and measured approach when considering future interest rate cuts.

Meanwhile, the European Central Bank (ECB) has kept rates unchanged since October, when it reduced its deposit rate to 3.25%. Inflation remains a key concern, with German and Eurozone CPI data showing renewed increases in November. Wage growth across the bloc has also accelerated, hitting 5.42% in Q3.

In the meantime, comments from ECB President Christine Lagarde on Wednesday came in on the neutral side, reiterating that growth risks in the euro region remain tilted to the downside.

Trump’s Trade Policies: A Cloud on the Horizon

Looking ahead, former US President Donald Trump’s proposed trade policies could inject fresh uncertainty into the market. Additional tariffs could drive US inflation higher, potentially prompting a more aggressive stance from the Fed. Such a scenario would likely bolster the USD, putting pressure on EUR/USD and other risk-sensitive assets.

EUR/USD daily chart

EUR/USD Technical Outlook

The technical setup for EUR/USD remains tilted to the downside. Key support levels include the 2024 low of 1.0331, marked on November 22. If the pair slides further, it could test additional support at 1.0290 and 1.0222—levels not seen since November 2022.

On the upside, immediate resistance lies at 1.0609, the weekly high from November 20, followed by the 200-day Simple Moving Average (SMA) at 1.0846. A more significant hurdle is the November peak of 1.0936, reached on November 6.

For now, the bearish trend persists as long as the pair trades below the 200-day SMA.

Four-hour charts reveal some consolidation. Resistance levels to watch include 1.0596, 1.0609, and 1.0653. On the downside, support is seen at 1.0460, 1.0424, and the key 1.0331 mark. Momentum indicators see the Relative Strength Index (RSI) around 51 and the Average Directional Index (ADX) showing a weak trend at 15.

Bottom Line

EUR/USD faces a challenging landscape shaped by USD strength, political uncertainty, and divergent central bank policies. While the pair has some room to recover, it remains vulnerable to further declines in the near term, especially as market dynamics shift.