Mon, Feb 10, 2025

EURUSD is moving in a downtrend channel

#EURUSD Analysis Video

The EUR/USD currency pair is caught in a tight range this week, hovering around the 1.0400 mark. With reduced trading activity due to the holiday season, traders may wonder what’s next for this popular forex pair. Let’s dive into what’s happening and what’s shaping the conversation around EUR/USD.

Why EUR/USD Is Quiet This Week

This week has seen thin trading volumes, with many markets slowing down for the holidays. Christmas Day and Boxing Day have led to muted price action in the forex market, keeping EUR/USD in a narrow range.

Despite this calm, there are a few key factors influencing the pair, including comments from European Central Bank (ECB) President Christine Lagarde and speculation about future interest rate moves by the US Federal Reserve (Fed).

ECB’s Focus on Inflation

Christine Lagarde, the ECB President, recently expressed optimism about achieving the central bank’s inflation target of 2%. She believes that inflation may return to sustainable levels sooner than expected. This is a promising sign for the Eurozone economy, but it doesn’t mean the ECB is ready to relax just yet.

both inflation and employment

Lagarde also highlighted concerns about service-sector inflation, which remains higher than desired. While overall inflation in the Eurozone has eased to 2.2%, inflation in services is still around 3.9%. This imbalance signals that the ECB must remain vigilant.

Her caution underscores the importance of monitoring inflation trends closely. While the Eurozone is making progress, the path to stable, long-term economic growth still has hurdles.

The Fed’s Plans: Two Rate Cuts in 2025?

On the other side of the Atlantic, the Fed’s monetary policy remains a hot topic. According to analysts at UBS, the Fed is expected to cut interest rates twice next year—in June and September. However, the central bank is taking a measured approach to rate adjustments, given the uncertainties surrounding inflation and labor market strength.

Shifting Perspectives on Rate Cuts

The Fed’s latest dot plot, a tool used to project future rate decisions, signals only two rate cuts in 2025. This is a shift from earlier projections, which included four cuts. This change reflects the Fed’s cautious outlook, influenced by persistent inflation and robust job market conditions.

EURUSD is moving in a descending channel, and the market has fallen from the lower high area of the channel

EURUSD is moving in a descending channel, and the market has fallen from the lower high area of the channel

Interestingly, comments from Fed officials suggest they are keeping a close eye on incoming data. The labor market has shown more resilience than expected, and inflation remains sticky. As a result, the Fed is not rushing to make aggressive moves, preferring instead to assess how the economy evolves.

What Traders Should Watch Next

With the year winding down, the economic calendar is relatively light. However, a few events could provide some direction for EUR/USD in the near term.

US Jobless Claims Data

On Thursday, the US will release its weekly jobless claims data, which could offer clues about the health of the labor market. Economists expect 218,000 new claims, slightly lower than the previous figure of 220,000. While this is not a dramatic change, it reflects ongoing stability in the US job market—a factor that could influence the Fed’s future decisions.

Market Sentiment and Thin Liquidity

It’s important to note that trading volumes are expected to remain low until the new year. This thin liquidity can lead to erratic price movements, so traders should stay cautious. Sudden spikes or drops may not necessarily indicate a change in trend but could simply result from low market participation.

ECB’s Stance and Trade Dynamics

Lagarde’s comments also touched on trade policies and their impact on the global economy. She warned against retaliatory measures in response to potential tariffs, describing such actions as harmful to global economic stability. This perspective highlights the interconnected nature of modern economies, where trade restrictions can have ripple effects far beyond the parties directly involved.

EURUSD is moving in an Ascending channel, and the market has reached the higher low area of the channel

EURUSD is moving in an Ascending channel, and the market has reached the higher low area of the channel

For EUR/USD, the interplay between economic policies, inflation, and central bank decisions remains the driving force. While the ECB and the Fed navigate their respective challenges, traders should stay tuned to how these developments shape sentiment around the currency pair.

Key Takeaways for Traders

If you’re watching EUR/USD, here are the main points to keep in mind:

  1. Holiday Calm: Thin trading volumes are keeping the pair in a tight range around 1.0400. Don’t expect major moves until activity picks up in the new year.
  2. ECB’s Vigilance: Lagarde’s focus on inflation, particularly in the services sector, indicates the central bank isn’t ready to declare victory just yet.
  3. Fed’s Patience: While the Fed is expected to cut rates in 2025, its cautious approach reflects ongoing concerns about inflation and labor market trends.

labor market has shown signs of strength

By staying informed and focusing on these factors, you’ll be better equipped to navigate the EUR/USD market as it transitions into 2024.

What’s Next for EUR/USD?

While this week’s trading may be quiet, the factors shaping EUR/USD are anything but boring. From central bank policies to inflation trends, there’s plenty to watch in the coming weeks. As always, staying updated and being prepared for shifts in market sentiment will be key to making informed decisions.

Whether you’re a seasoned trader or just getting started, understanding the broader economic picture can help you navigate the ups and downs of forex trading. So, keep an eye on the news, watch for updates from the ECB and the Fed, and get ready for a potentially eventful year ahead!


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