EUR/USD: Below $1.0550, selling pressure remains dominant

The EUR/USD remains anchored in a fundamental bearish bias, before the last monetary policy decision, Wednesday, December 18, of the Fed at the end of the FOMC. What "gift" will they find under the tree of Powell? In all, the barometer that constitutes the stock markets shows serenity and confidence.

"We expect that the FOMC (monetary policy committee of the American Federal Reserve) will reduce rates by 25 basis points (0.25 percentage point, editor's note) next week, but that it will indicate a more gradual rate path thereafter", say the economists at Barclays.

"We believe that the report on the economic outlook will show upward revisions to growth and inflation, a fall in unemployment and three reductions next year. We maintain our basic assumption that the FOMC will not reduce its rates more than twice in 2025", they add.

The CME Group's FedWatch tool puts the probability of seeing the Fed validate this 25 basis point easing of the Dollar's rent at an overwhelming 97%.

Currency traders are digesting a decision of the same nature - but which does not exactly meet the same objectives - from the ECB which was finishing a Governing Council, the last of the year.

The scenario of a 50 basis point cut, which without holding the rope was part of the universe of possibilities, has therefore been ruled out. This probability had in any case clearly "fallen due in particular to moderate statements by members of the ECB, including Isabel Schnabel, indicating that the measures taken by the central bank do not resolve the structural problems. "I would warn against too significant a move, that is to say towards accommodative territory. I don't think it's appropriate in the current perspective" she said a few days ago in an interview with our colleagues at Bloomberg", notes Alex Baradez (IG France).

However, Christine Lagarde did not avoid "the risk of increased frictions in global trade", which could "weigh on eurozone growth by reducing exports and weakening the global economy". The ECB has also revised downwards its growth and inflation forecasts from 2024 to 2026.

"As expected, it did not make any commitments on a future monetary policy direction and did not suggest that a new rate cut was planned for January. Given the high degree of political and economic uncertainty, the ECB maintains its reliance on data and its case-by-case approach for each meeting", notes Ulrike Kastens, European economist DWS, who [continues] to think that the ECB is on a rate cut trajectory.

"Although growth forecasts have been revised down, the risks to the economy are not yet fully priced into GDP projections. This is expected to be gradually corrected in 2025. We expect another rate cut in January and more to follow. We expect the ECB to lower the deposit rate to 2% in 2025."

"More importantly, in our view, the statement and press conference made it very clear that the monetary stance is still restrictive, with Christine Lagarde (the ECB president, editor's note) stating that there was 'no question about it," says Fred Ducrozet, Director of Macroeconomic Research at Pictet Wealth Management.

"Furthermore, the wording on inflation and wages was also dovish. High domestic inflation remains a concern, but it was described as the adjustment of 'some sectors' to the past inflationary surge 'with a substantial delay," he continues.

In the immediate future, traders have just seen, very early in the month, the first estimates of the PMI barometers in the Eurozone. The German industrial component, which came in below expectations at 42.5, weighs down the synthetic data for the entire monetary union. However, "while manufacturing remains mired in a deep recession, the rebound in the services sector is good news for the economy as a whole," notes Dr. Cyrus de la Rubia, Chief Economist at Hamburg Commercial Bank, who adds:

"Germany and France, the two largest economies in the region, are currently in very uncertain political situations. This climate is preventing the implementation of reforms needed to revive growth in the short term and is contributing to the continued weakness in both countries. In the longer term, however, this high uncertainty implies the possibility of an improvement in the economic situation: if the future governments of both countries manage to draw up a road map, 2025 could hold some positive surprises."