EUR/USD drifts lower ahead ECB decision, US CPI data

EUR/USD has been rejected at 1.1750 and trades lower for the third consecutive day, changing hands at 1.1715 at the time of writing, but still within the weekly range, above 1.1700. The pair is suffering as the US Dollar accelerates its recovery, with investors reluctant to take excessive risks ahead of key interest rate decisions and the release of US consumer inflation data.

The highlight of the day will be the outcome of the European Central Bank's (ECB) monetary policy decision. The bank is widely expected to leave its benchmark Rate On the Deposit Facility unchanged at 2% and signal steady monetary policy for the foreseeable future. Any nod to a rate hike on the horizon would be considered a hawkish sign and boost the Euro (EUR) higher.

In the US, investors will be attentive to the release of November's Consumer Price Index (CPI) for further insight about the US Federal Reserve's (Fed) monetary policy plans. Labour data released earlier in the week has been fairly soft, and the risk now is on a moderate inflation reading, which would pave the path for further monetary easing and increase bearish pressure on the US Dollar (USD)

Daily Digest Market Movers: Euro remains supported by ECB-Fed divergence

• The Euro downside attempts remain limited so far, with the EUR/USD pair trading near three-month highs as investors anticipate further interest rate cuts by the Fed, while, in the ECB, the next move is likely to be a rate hike.
• The European Central Bank will, most likely, leave interest rates on hold for the fourth consecutive meeting and stick to the "meeting-by-meeting" rhetoric. Investors, however, will be attentive to the bank's economic growth forecasts, amid growing speculation about the possibility of a rate hike in the second half of 2026.
• The Fed, on the contrary, is immersed in its easing cycle, which, according to US President Donald Trump, might have a long way to go. Trump said on Wednesday that he will soon announce the name of the next Fed Chairman and that it will be someone who believes in lowering borrowing costs "by a lot".
• With those comments in the review, the market will be particularly attentive to the November US Consumer Price Index (CPI) figures, due later on Thursday. Consumer inflation is expected to have ticked up to a 3.1% year-on-year rate in November from September's 3.0%. October's reading will not be released because the US government shutdown discontinued data collection.
• On Wednesday, Eurostat revised the Eurozone's November Harmonized Index of Consumer Prices (HICP) growth to 2.1% year-on-year, from the 2.2% previously estimated. The core HICP was left unchanged at a 2.4% yearly growth.
• Also on Wednesday, German IFO data showed that the business climate deteriorated for the second consecutive month in December. The headline indicator eased to 87.6 from 88.0 in November, against the market consensus of a moderate improvement to 88.2. The index measuring the sentiment about the current economic situation remained unchanged at 85.6, below market expectations of 85.7, while the Expectations index dropped to 89.7 from 90.5. The market consensus had anticipated a steady reading.
• In the US, Fed officials continued highlighting their divergences. Governor Christopher Waller, one of Trump's favourite candidates to replace Jerome Powell, said that the central bank has room to cut interest rates further. On the hawkish side, Atlanta Fed President Raphael Bostic warned about excessive monetary easing amid the lingering inflationary pressures.

Technical Analysis: EUR/USD approaches support at 1.1700 area

The EUR/USD is coming under growing bearish pressure, with bears focusing on the 1.1700 support area. The 4-hour Relative Strength Index (RSI) pulled back below the 50 level, and the Moving Average Convergence Divergence (MACD) indicator is showing deeper red bars, which point to a growing negative momentum.

Immediate support is at Wednesday's low near 1.1700 ahead of an important area near 1.1685, where a trendline support converges with the December 11 low and the December 4 high. A confirmation below this level would cancel the bullish view and bring the December 9 low, at 1.1615, into focus.

To the upside, the intraday high, near 1.1760, is likely to challenge bulls ahead of Wednesday's peak, at 1.1804, and the September 23 and 24 highs, near 1.1820.