**EUR/USD Slips in Quiet New Year Trading Amid Cautious Market Sentiment**
*By Anil Panchal, FXStreet.com — Enhanced and expanded with additional research and commentary*
The EUR/USD currency pair began the first trading week of 2024 with a downside bias, reflecting a cautious and subdued trading environment. Investors are adjusting their positions after an extended holiday season, and the first sessions of the year are typically characterized by thin liquidity and limited participation. As of early Tuesday, January 2, 2024, the pair has edged slightly lower, trading near 1.1040 during the Asian market hours, after failing to extend gains from the late December rally.
This article explores the fundamental and technical drivers influencing EUR/USD at the start of 2024, taking a broader look at central bank policies, macroeconomic data, and market sentiment.
## Key Highlights
– EUR/USD trades lower around 1.1040 during early Asia trading on January 2, 2024.
– US Dollar gains modest recovery following profit-taking and rising Treasury yields.
– Market participants focus on upcoming inflation data from Germany and the Eurozone.
– The Federal Reserve’s policy outlook continues to shape expectations for the greenback.
– Light trading volume is expected to persist in the first days of January.
## A Return to Calm After a Volatile December
EUR/USD rallied strongly in the final months of 2023, gaining nearly 3.2 percent in the fourth quarter and ending December with significant bullish momentum. Optimism surrounding potential Federal Reserve rate cuts, a weaker US Dollar, and improving sentiment in the Eurozone all contributed to the pair’s strength. However, the start of 2024 brings a more cautious tone, with a slight pullback observed in the first trading hours of the year.
The moderate downside seen in EUR/USD appears to be influenced more by technical consolidation and profit-taking rather than a dramatic shift in underlying fundamentals.
## Dollar Recovers Slightly as Treasury Yields Climb
The US Dollar Index (DXY), which tracks the greenback against a basket of six major currencies, has rebounded marginally from recent lows, climbing above the 101.00 threshold. This modest recovery is driven partly by a rise in US Treasury yields, which gained in early 2024 as investors adjusted expectations for monetary policy easing by the Federal Reserve.
Notable drivers of the Dollar’s slight revival:
– **10-Year Treasury Yields:** US 10-year yields have risen to around 3.92 percent on the back of rebalancing and risk reassessment.
– **Reduced Rate Cut Bets:** While the market had priced in multiple interest rate cuts starting as early as March 2024, recent Fed commentary has introduced doubts about the aggressiveness of this trajectory.
– **Technical Correction:** After declining for most of Q4 2023, the DXY faces natural support levels which traders are now testing for sustainability.
Fed funds futures markets still price in significant rate cuts in 2024, but uncertainty remains about the pace and timing of policy easing. Traders now await granular data such as December’s Nonfarm Payrolls (NFP) and wage growth figures for further direction.
## ECB and Eurozone: A Different Policy Path?
The European Central Bank (ECB), while also facing growing pressure to pivot from restrictive monetary policy, is taking a seemingly more patient approach than its US counterpart. ECB President Christine Lagarde recently stated that interest rate cuts are not being discussed yet and that inflation must firmly move toward the 2 percent target before any easing happens.
Several factors are shaping euro sentiment:
– **German Inflation Prints (CPI Data):** Due Tuesday afternoon, Germany’s State and National CPI figures could indicate inflation trends across the bloc and influence the ECB’s future moves.
– **Eurozone Core Inflation:** With the Euro Area’s core consumer price index scheduled later in the week, the data’s implications for monetary policy expectations are substantial.
– **Economic Concerns:**
Read more on USD/CAD trading.