Christmas Week: Sparse Data and Irregular Market Activity
EUR/USD Faces False Break Risks Amid Year-End Volatility
The U.S. inflation is progressing at a slower pace than anticipated, as shown by last week’s Core PCE Price Index which advanced just 0.1%. The previous value was 0.3% and the projected reading was 0.2%.
This makes the case for the Fed’s new stance on rate cuts, which came as a bit of a surprise. Although the rate was cut by 25 bps, as anticipated, Fed Chair Powell iterated that the Fed will have a more cautious approach to rate cuts in 2025.
This means that we will probably see increased volatility whenever inflation numbers that do not meet the expectations are posted. Currently, there’s a 91.4% probability that the Fed will keep the rate unchanged at their January meeting, according to CME’s FedWatch tool. However, there’s a 50/50 chance for a rate cut in March.
Economic Calendar Highlights
Unsurprisingly, we have a very light economic week ahead. Many countries are celebrating Christmas, so economic releases are few and far between.
The U.S. Consumer Confidence survey will come out Monday at 3:00 pm GMT but it is not usually a high impact indicator. Confidence among consumers is a leading indicator of consumer spending, which represents a major part of the entire economic activity.
Tuesday’s highlights will be the U.S. Durable Goods orders and New Home Sales released at 1:30 pm GMT and 3:00 pm GMT, respectively. Wednesday and Thursday banks in Europe, the U.K., and the U.S. will be closed in observance of Christmas and the last day of the week does not have any major releases on the schedule.
Technical Outlook – EUR/USD
The dollar strengthened Wednesday, mostly due to the Fed’s actions and forward guidance but it looks like the trend may be ending or at least this may be the beginning of a ranging period.
The pair created a double bottom at 1.0350 and the latest bounce was textbook, which shows the importance of this level. The next destination may be 1.0500 and the downtrend line that is drawn from the 1.1200 top.
The entire period until the end of the year will be characterized by irregular volatility and this could mean that some levels are broken without volume. This means that false breaks are more likely to occur and caution is advised.
