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Analysis

EURUSD Technical Analysis | ECB upholds restrictive rates temporarily

BY Janne Muta, M.Sc in Finance

|December 14, 2023

EURUSD Technical Analysis - The European Central Bank (ECB) has chosen to maintain its current interest rates, aligning with the expected gradual wind-down of its long-standing bond purchase program in the eurozone.

Despite increasing rates to record levels earlier, the ECB is now shifting focus from tightening policies to potentially reversing them, as recent mild inflation data suggests less need for aggressive measures. This approach contrasts with market expectations, which anticipated two rate cuts by April 2024 and a total easing of 155 basis points.

Keeping interest rates at multi-year highs, the ECB's main refinancing operations rate remains at a 22-year peak of 4.5%, with the deposit facility rate at an unprecedented 4%. The ECB has also announced that the full reinvestment under the Pandemic Emergency Purchase Programme (PEPP) will cease on June 30.

Committed to combating high inflation, policymakers have pledged to maintain restrictive rates as long as necessary to achieve their inflation targets. The ECB has projected inflation to average 5.4% in 2023, 2.7% in 2024, 2.1% in 2025 and 1.9% in 2026. The core rate is seen slightly higher at 5.0% in 2023, 2.7% in 2024, 2.3% in 2025 and 2.1% in 2026.

Yesterday, the US Federal Reserve maintained its funds rate at the highest level in 22 years, between 5.25% and 5.5%, for the third consecutive meeting. However, their "dot plot" projections signal a possibility of three-quarter-percentage-point reductions in 2024. Among Fed officials, eight expect less than three quarter-point decreases next year, while five foresee more.

Market expectations, as reflected in the Fed Funds futures, suggest traders are anticipating the Federal Reserve to implement six rate cuts in 2024, starting as early as March. According to the Fed Funds futures pricing, there's an 84% chance of a rate cut in March, potentially bringing the Fed's target rate down to a range between 3.75% and 4%.

Summary of This EURUSD Technical Analysis Report:

  • USD rallies over 2% due to dovish Fed comments and ECB rate decision; bullish above 1.0723, targeting 1.1065 despite mixed signals from moving averages and oscillators.
  • Two consecutive daily wide range candles indicate bullishness; market approaches resistance at 1.1017, support at 1.0818, with potential retracement or further rally based if USD sentiment remains bearish.
  • Post-ECB decision rally shows in the 4-hour chart with the nearest supports at 1.0880 and 1.0915.

Read the full EURUSD technical analysis report below.

EURUSD Technical Analysis

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Weekly EURUSD Technical Analysis

This week, the EURUSD has rallied by over 2%, following institutional buying at 1.0723 on December 8th. Much of this rally was spurred by dovish comments from the Fed, and the market extended its gains today after the ECB left interest rates unchanged. The market remains bullish above last week's low of 1.0723, with EUR bulls potentially targeting the next market structure level at 1.1065.

Consequently, the market bias remains bullish, even though EURUSD technical analysis provides mixed signals. Namely, the 20-period moving average is pointing lower and is positioned below the 50-period moving average. Meanwhile, the stochastic oscillator suggests a lack of momentum.

However, as price action drives indicators and not vice versa, greater emphasis should be placed on price action oriented EURUSD technical analysis.

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Daily EURUSD Technical Analysis

The daily chart shows two wide range candles, formed yesterday and today. In this timeframe, EURUSD technical analysis indicates a bullish market bias. The market is nearing the nearest daily timeframe resistance level at 1.1017, with the closest support at 1.0818.

Intraday traders might target this pivotal high (1.1017), which could bring supply near the resistance level and slow down the price advance. If there is a deep retracement, price action around the 1.0818 support level should be monitored for signs of renewed buying.

Alternatively, if traders remain as bearish on the USD as they have been in the past two days, our EURUSD technical analysis suggests the market could extend further and test the next weekly market structure level at 1.1065

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Intraday EURUSD Technical Analysis

The EURUSD rally that followed the ECB rate decision is evident in the 4-hour chart. The nearest support levels on this chart are at 1.0880 and 1.0915. If there is a retracement back to these levels, some intraday traders might consider re-engaging the market within this range.

Therefore, readers are advised to closely follow price action within this range to determine, according to their own EURUSD analysis, if the market shows any signs of renewed buying.

The upward move has been so strong that the moving averages are only now reacting to it, highlighting the lagging nature of moving average-based EURUSD technical analysis. Therefore, price action-based analysis should always be given priority.

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Client sentiment analysis

44% of clients trading EURUSD are holding long positions, while 56% are holding short positions. Client sentiment data is being provided by TIO Markets Ltd.

It’s good to remember that retail client trading sentiment is a contrarian indicator as most retail traders are on average trading against market price trends. This is why experienced traders tend to trade against the retail client sentiment. You can follow the TIOmarkets client sentiment live on our Forex dashboard.

The next key risk events impacting this market

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  • USD - Empire State Manufacturing Index
  • USD - Industrial Production m/m
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Potential EURUSD Market Moves

In the bullish scenario, continued USD weakness could propel EURUSD towards the weekly market structure level of 1.1065, especially if sustained buying emerges around the 1.0818 support.

Conversely, a bearish outlook might see a retreat to intraday supports at 1.0880 or 1.0915, with a deep retracement potentially testing the 1.0723 level, challenging the current bullish momentum.

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How would you trade the EURUSD today?

I hope this EURUSD technical analysis report helps you to make better informed trading decisions. Check the latest market analysis for other instruments and subscribe to receive them in your inbox as soon as they are published

While research has been undertaken to compile the above content, it remains an informational and educational piece only. None of the content provided constitutes any form of investment advice.

TIO Markets UK Limited is a company registered in England and Wales under company number 06592025 and is authorised and regulated by the Financial Conduct Authority FRN: 488900

Risk warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 73% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money. Professional clients can lose more than they deposit. All trading involves risk.

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Janne Muta, M.Sc in FinanceChief Market Analyst

Janne Muta holds an M.Sc in finance and has over 20 years experience in analysing and trading the financial markets.