Market Reaction: Euro-Dollar Slides away from 1.1040 as Traders Cut Dollar Shorts

• EUR/USD hits 18-week high on Friday.
• Pre-holiday markets are producing some rough chop heading towards the Friday close.
• Slowing US inflation is pushing down the Greenback as markets bet on rate cuts.

The EUR/USD soared to an 18-week high of 1.1040 before dipping back to 1.1000 as markets wind down operations ahead of the holiday break. US inflation fell short on Friday, coming in below expectations and fueling investor expectations of Federal Reserve (Fed) rate cuts in 2024.

Read More: US PCE inflation softens to 2.6% from a year ago vs. 2.8% expected

US Personal Consumption Expenditure (PCE) Price Index softened more than anticipated on Friday, with the Core Annualized PCE Price Index for the year through November registering at 3.2%, below the expected 3.3% and even further down from October’s YoY print of 3.4% (revised down slightly from 3.5%).

Market expectations for a faster pace of rate cuts from the Federal Reserve (Fed) through 2024 have intensified due to inflation metrics declining faster than most models can predict. Investor expectations now exceed the Fed’s own rate projections, with money markets pricing in over 160 basis points in Fed rate cuts, and some predicting the rate cut cycle begins as soon as next March, while the Fed’s own interest rate expectations only foresee 75 basis points in reductions by the end of 2024.

The USD-short momentum was tempered by a beat in US Durable Goods Orders, which hit 5.4% for November compared to October’s -5.1% (revised up slightly from -5.4%), indicating the US economy may still be strong enough for the Fed to get away with fewer rate cuts than many expect.

EUR/USD Technical Outlook

Despite the US Dollar’s moderate pullback late Friday, the Greenback remains firmly down for the week, down nearly a third of a percent against the Euro from Monday’s opening bids.

The US Dollar is still up on the day against the Euro, and a green close here will see the EUR/USD close in the green for seven of the last nine straight trading weeks.

Technicals are leaning into the bullish side, leaving a wake of technical support flags in the pair’s wake on its rise from October’s early lows near 1.0450. The last meaningful swing low saw a turnaround point at 1.9793, and the 200-day Simple Moving Average (SMA) rising towards 1.0850.

EUR/USD Hourly Chart

EUR/USD Daily Chart

EUR/USD Technical Levels

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