The EUR/USD currency pair remained steady throughout the first half of the day, consolidating around the 1.0400 mark. In a significant development, the US Federal Reserve (Fed) opted to maintain the benchmark interest rate during its January meeting, a decision widely anticipated by financial analysts. Meanwhile, the European Central Bank (ECB) took a more proactive stance by lowering key rates by 25 basis points each, bringing the Deposit Facility Rate down to 2.75%.
The US economy showed signs of slowing down as the Gross Domestic Product (GDP) for the fourth quarter posted a growth rate of 2.3%, falling short of market expectations. However, the core Personal Consumption Expenditures Price Index aligned with forecasts, rising by 2.5% on a quarterly basis. Despite these economic indicators, the EUR/USD pair continued to trade in negative territory for the third consecutive day, remaining close to 1.0400.
Technical analysis of the EUR/USD pair reveals a mixed picture. The 20 Simple Moving Average (SMA) offers dynamic support around 1.0350, but technical indicators provide uneven directional signals while staying in positive territory, indicating a lack of selling pressure. The 100 and 200 SMAs are positioned well above the current level, with the shorter SMA exhibiting a strong bearish trend, suggesting that the pair lacks clear directional strength in the near term.
Support levels for the EUR/USD are identified at 1.0380, 1.0350, and 1.0310, while resistance levels are set at 1.0440, 1.0485, and 1.0520. Market participants continue to monitor these levels closely as they assess potential movements in the pair.
The US published its initial estimate of Q4 GDP, revealing an annualized growth rate of 2.3% for the three months leading up to December. This figure was below expectations and has contributed to the current sentiment surrounding the dollar's performance against the euro.
In terms of labor market indicators, Initial Jobless Claims for the week ending January 24 showed improvement, dropping to 207K from a previous figure of 223K. This decline indicates a strengthening job market despite broader economic challenges.
The ECB's decision to lower rates comes as part of its strategy to stimulate demand amidst prevailing economic pressures. The ECB highlighted this approach in a recent statement:
“The economy is still facing headwinds, but rising real incomes and gradually fading effects of restrictive monetary policy should support a pick-up in demand over time,”
- The European Central Bank (ECB)
The ECB's rate cut aims to counteract economic headwinds by enhancing liquidity and encouraging spending within the Eurozone. The central bank's actions reflect ongoing efforts to bolster economic activity through accommodative monetary policy measures.