The Euro-Dollar witnessed a significant decline in European markets on Tuesday against a basket of major currencies, continuing its losses for the third consecutive session against the US Dollar, amid growing concerns over the widening interest rate gap between the Eurozone and the United States.

Euro Movements Against The Dollar Today

The Euro declined against the US Dollar during today’s trading by 0.15%, reaching a level of 1.0539 USD compared to the session’s opening price of 1.0553 USD.

The European currency recorded its highest level of the day at 1.0568 USD, amid ongoing pressures resulting from the disparity in the performance of the US and European economies.

Key Economic Developments For The Euro-Dollar Pair

Interest Rate Gap

The gap between interest rates in the United States and Europe has reached 135 basis points in favor of the US Dollar, with expectations of it widening to 160 basis points this week, increasing pressure on the Euro against the Dollar.

European Monetary Policy

The European Central Bank (ECB) will hold its last monetary policy meeting of 2024 tomorrow, Wednesday, with the interest rate decision scheduled to be announced on Thursday.

Christine Lagarde, President of the ECB, stated before the European Parliament in Brussels last week that the bank’s fight against inflation is nearing its end, but it has not been fully resolved.

The ECB is not expected to be impacted by the growing political unrest on the continent during its upcoming meeting.

Markets are pricing in a 90% probability of a 25 basis point rate cut by the ECB this week.

US Monetary Policy

According to the CME Group’s “FedWatch” tool, markets are pricing in an 89% probability of a 25 basis point rate cut at the next Federal Reserve meeting, while the likelihood of leaving rates unchanged stands at 11%.

Investors are awaiting the release of US inflation data for November this week, which will determine the extent of inflationary pressures on the Federal Reserve’s monetary policy direction.

Euro/Dollar Forecast

Dollar Forecast

The chart shows the movement of the Euro-Dollar pair (EUR/USD) on a 4-hour timeframe.

  • Wave (2): The large wave marked in blue indicates the completion of a major corrective wave at the price level of 1.03321.
  • Wave (1): The next upward wave indicates the beginning of a new impulsive wave.
  • Wave 2 (Corrective): The current wave is downward and corrective (a, b, c) within the main wave (2).

The correction is expected to end at wave (c) within wave 2 at a certain level close to the current support.

After the completion of wave (c), the price is expected to start a new impulsive wave (wave 3) moving strongly upward, as indicated by the blue arrow.

This upward wave is assumed to be longer and stronger, as it comes after a strong correction.

Support and Resistance Levels:

  • Main Support: The level at 1.03321 where the large wave (2) ended.
  • Next Resistance: Higher levels at 1.0650 and then 1.0700 based on the extension of wave 3.

The price is currently in a corrective phase, and a strong upward reversal is expected once wave (c) is completed.

Traders may look for buying opportunities at the end of the correction (c), with a stop loss placed below the lowest point of the wave.

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