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Summary: The Euro rose strongly against the US Dollar on Tuesday but lacked sufficient adjustment space. Despite bearish indications from momentum, as long as the key support is not breached, there is still a foundation for further upward movement.

Fundamentals

During the European session on Tuesday, the EURUSD stabilized around 1.0800, but this could be temporary. Market attention is turning to the eagerly awaited November US Consumer Price Index (CPI) report, scheduled to be released by the US Bureau of Labor Statistics at 13:30 Greenwich Mean Time. Inflation is expected to soften further, and if it aligns with market expectations, it may intensify the view that the Fed will end rate hikes before the last meeting of the year.

Meanwhile, the two-day Fed meeting is set to begin on Tuesday and end on Wednesday evening. The main focus will be on interest rate decisions, with rates expected to remain stable at 5.50%.

Investors are primarily focused on potential moves by the Fed in February and March, with widespread speculation that the Fed may cut rates at the end of the first quarter. Any hints or signals in this regard will be crucial for market dynamics.

This week, the Fed, the European Central Bank, the Bank of England, the Swiss National Bank, and the Norges Bank will announce interest rate decisions on Thursday. Except for Norway, other central banks are expected to keep rates unchanged. Given the weakness of the Norwegian Krone, the Norges Bank may choose to raise interest rates. However, there are rumors that the Swiss National Bank may consider intervening in the foreign exchange market to curb the Swiss Franc, which touched a nine-year high against the Euro last week.

For the EURUSD, market expectations for a rate cut by the European Central Bank in 2024 have risen sharply since data showed a significant decline in inflation in the Eurozone last week. However, these expectations may have gone too far too quickly and could quickly retreat, putting pressure on the recent upward movement of the asset.

Currently, the market expects the European Central Bank to cut rates by a substantial 140 basis points starting in April next year, possibly as early as March. However, this seems to be exaggerated. The ECB will try to cool down the rate cut expectations currently reflected in the money markets at the meeting next week.

Technical Analysis

During the European session, the EURUSD showed strong upward momentum above the 1.0800 level. Bulls are currently consolidating around this level, forming a range-bound pattern. The RSI in the daily chart remains slightly below the 50 level, indicating a lack of further interest from bulls. This situation is confirmed by the MACD, with its signal line below zero, pointing entirely downward. This suggests that the asset may experience another brief period of strength, and prices may return to the bottom of the range.

If the recent low of 1.0724 is breached, it would signify a continuation of the downward momentum, further developing the trend towards the 1.0594 level. Once the quote reaches this level, bears will continue to target the 1.0400 range.

However, we believe that the momentum is not always pessimistic. If the asset further breaks above and surpasses the key range resistance at 1.0817, it may trigger a reversal and shift the current downward momentum to neutral, laying a crucial foundation for future upward movement.

If the bulls climb above 1.0820 (the 200-day SMA) and confirm this level as support, it will attract technical buying. In this case, the 1.0870 level may act as a temporary resistance before the bulls test the psychological level of 1.1000. In terms of trading strategy, the focus should be on buying on dips as long as key support remains intact.

Trading Recommendations

Trading Direction: Long

Entry Price: 1.0775

Target Price: 1.0959

Stop Loss: 1.0650

Valid Until: 2023-12-26 23:55:00

Support: 1.0765, 1.0724, 1.0655

Resistance: 1.0817, 1.0863, 1.0926