Original article by Valeria Bednarik, FXStreet
Rewritten and expanded version:
EUR/USD Weekly Forecast: Lingering Federal Reserve Ambiguity and Geopolitical Tensions Fuel Subdued Market Behavior
The EUR/USD pair remained largely directionless over the past week, with forex traders navigating through the haze of Federal Reserve policy ambiguity and persistent geopolitical risks. The minor gains that EUR/USD posted were largely underwhelming, reflecting cautious sentiment prevailing across global markets. As the Federal Reserve’s dovish signals become more opaque and economic cues remain inconsistent, investors adopted a wait-and-see approach, leading to reduced volatility and muted price action.
This article offers a comprehensive review of the fundamental and technical factors affecting EUR/USD in recent sessions and what traders should watch for moving forward. All original insights are based on an article by Valeria Bednarik, Chief Analyst at FXStreet.
Limited Action in EUR/USD During the Second Week of 2024
The EUR/USD pair hovered within a narrow range, finishing the week slightly above the pivotal 1.0900 level. Despite minor intraday fluctuations, neither bulls nor bears could generate enough momentum to establish a lasting trend. Chancellor shifts and uncertainty over central bank paths presented a challenging landscape for significant breakout movements.
Contributing factors to this subdued performance included:
– Ambiguous messaging from the U.S. Federal Reserve on the timing and scale of upcoming rate cuts
– Soft inflation numbers from both the Eurozone and the United States, suggesting cooling price pressures
– Cautious trading sentiment stemming from geopolitical developments, particularly in the Middle East and Eastern Europe
– A relatively quiet economic calendar, depriving traders of impactful data releases
Federal Reserve: Dovish Hints But No Commitments
While the Federal Reserve has generally leaned dovish since late 2023, Chair Jerome Powell and other Fed officials have been careful not to commit to a firm timeline for monetary policy easing. Markets expecting multiple rate cuts in 2024 were met with mixed signals as January began.
Highlights from recent Fed developments:
– Fed policymakers maintained the federal funds rate at a target range of 5.25% to 5.50% in December
– The statement accompanying the move suggested “rate cuts are likely appropriate” at some point in 2024
– Market expectations briefly priced in chances of cuts as early as March, though those chances declined later due to strong labor market data
– Key Fed officials, including New York Fed President John Williams and Fed Governor Christopher Waller, tempered expectations by emphasizing data-dependence
The overall impression is that while the door remains open for rate cuts this year, the central bank is in no rush to act aggressively. This slow approach left market participants hesitant to fully commit to positions, translating into conditions unfavorable for large moves in EUR/USD.
US Economic Data Paints a Mixed Picture
U.S. data in the past week remained varied, offering little decisiveness on inflation or the broader economic outlook. On one hand, inflationary pressures appeared to be moderating. On the other, the labor market and some sectors of personal spending held firm.
Key releases included:
– The Consumer Price Index (CPI) rose 3.4% year-over-year in December, slightly above expectations of 3.2%
– Core CPI, excluding food and energy, increased by 3.9% year-over-year
– The Producer Price Index (PPI) declined unexpectedly by 0.1% month-over-month, indicating upstream inflation trends are moderating
– Initial Jobless Claims stayed historically low, underscoring continued labor market resilience
These data releases did little to clarify the Federal Reserve’s next steps. Traders remained fixated on forthcoming inflation figures, specifically the Personal Consumption Expenditures (PCE) index due later in the month, known as the Fed’s preferred measure of inflation.
Eurozone Data Maintains a Pessimistic Tone
In stark contrast to the U.S., the Eurozone continued to face
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