• EUR/USD tests region below 1.0500 as the Euro (EUR) weakens, weighed by expectations of further ECB interest-rate cuts.
• The ECB is expected to cut its Deposit Facility rate by 25 bps on Thursday for the third meeting in a row.
• Investors await the US inflation data for fresh interest-rate guidance.

EUR/USD extends its downside around the psychological support of 1.0500 in Wednesday’s European session. The major currency pair weakens due to firm expectations that the European Central Bank (ECB) will reduce its Deposit Facility rate by 25 basis points (bps) to 3% in the policy meeting on Thursday and US Dollar (USD) strength ahead of the United States (US) Consumer Price Index (CPI) data for November. 

As for the ECB, a rate cut would be the third straight one in a row and the fourth this year.

A 25-bps interest rate reduction by the ECB is widely anticipated as policymakers are increasingly convinced that inflation is under control and increasing signs that Eurozone business activity is struggling. Meanwhile, a handful of ECB officials see risks of inflation undershooting the central bank’s target due to potential tariff threats by US President-elect Donald Trump and weak domestic demand.

With traders pricing in an ECB rate cut on Thursday, investors will pay close attention to President Christine Lagarde’s comments in the press conference after the policy decision for fresh interest-rate guidance. Lagarde could deliver somewhat dovish remarks due to political instability in Germany and France and the potential adverse impact of Trump’s tariffs on the export sector.
 

Daily digest market movers: EUR/USD under pressure ahead of US inflation data

• EUR/USD is down as the US Dollar extends its winning streak for the fourth trading session ahead of the US inflation report, which will be published at 13:30 GMT. The US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, climbs above 106.50.
• Economists expect annual headline inflation to have accelerated to 2.7% from the October reading of 2.6%. In the same period, the core CPI – which excludes volatile food and energy prices – is expected to have risen steadily by 3.3%. The month-on-month headline and core CPI are estimated to have grown by 0.3%.
• The impact of the inflation data shouldn’t significantly tweak market expectations for the Federal Reserve’s (Fed) likely interest rate action in the policy meeting on December 18 unless there is a dramatic deviation from what’s expected. Recent commentaries from a majority of Fed officials have indicated that they are confident about inflation remaining on a sustainable path towards the bank’s target of 2%.
• According to the CME FedWatch tool, the probability for the Fed to reduce interest rates by 25 bps to 4.25%-4.50% is almost 90%. 
   

Technical Analysis: EUR/USD struggles to hold 1.0500

(Click on image to enlarge)

EUR/USD struggles near the psychological figure of 1.0500. The outlook of the major currency pair remains bearish as the 20-day EMA near 1.0565 acts as key resistance for the Euro (EUR) bulls.

The 14-day Relative Strength Index (RSI) wobbles near 40.00. Should the RSI fall below this level, a bearish momentum will trigger.

Looking down, the November 22 low of 1.0330 will be a key support. On the flip side, the 50-day EMA near 1.0700 will be the key barrier for the Euro bulls.

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