On Friday (December 27th), against the backdrop of the global financial market maintaining a holiday off-season, the euro/dollar (EUR/USD) continued to fluctuate around the 1.0400 range, showing a strong weakness in overall trend with limited volatility. The market sentiment on the current trading day is cautious, mainly affected by the Christmas holiday and the US market holiday, resulting in low liquidity. This situation makes it difficult for the euro to break through its current sluggish state in an environment with a strong US dollar. As market expectations for the future direction of European Central Bank (ECB) policies gradually become clearer, and the Federal Reserve (Fed) may slow down its pace of interest rate cuts, the euro/dollar still faces downward pressure in the short term.

The latest trading price of EUR/USD is 1.0420, with a slight decrease of about 0.01% during the day. The relatively narrow trading range indicates a wait-and-see attitude among market participants during the holiday period. At the same time, the relatively strong performance of US economic data further supported the rise of the US dollar. The number of initial jobless claims in the United States unexpectedly dropped to 219000 on December 20th, far below the expected 224000, further enhancing the upward momentum of the US dollar.

In addition, the impact of the Federal Reserve's monetary policy expectations on the trend of the US dollar remains significant. The market generally expects the Federal Reserve to adopt more cautious interest rate cuts in 2025. According to the latest Federal Reserve dot matrix, it is expected that the federal funds rate will fall to 3.9% by the end of 2025, compared to the previous expectation of falling to 3.5%. This indicates that the Federal Reserve's interest rate cuts may be lower than previously expected by the market, further consolidating the strong position of the US dollar.

Fundamental Analysis of the Euro

Although the European Central Bank (ECB) is implementing a relatively aggressive monetary tightening policy, market expectations for future interest rate trends also appear pessimistic. According to current market expectations, the European Central Bank may continue to lower deposit rates by 100 basis points, and this measure is expected to continue in the first half of 2025. Despite the gradual control of inflation in Europe, which is still above the 2% target, the ECB may adopt more cautious policies to avoid excessive inflation decline and affect economic growth.

European Central Bank President Christine Lagarde recently stated that although inflation has shown signs of easing, there is still a need to be vigilant about inflationary pressures in the service sector, which means the ECB may not be eager to significantly relax monetary policy. Lagarde pointed out in an interview with the Financial Times that the European Central Bank will maintain a high level of attention to inflation, especially in the service sector.

Technical analysis: Euro continues to fluctuate and consolidate

From a technical perspective, the euro/dollar has continued to maintain a volatile consolidation pattern in the near future, consistently consolidating above the two-year low of 1.0330. The 20 day and 50 day moving averages (EMAs) of the index are at 1.0477 and 1.0607, respectively, indicating downward pressure and suggesting that bearish trends still dominate. The relative strength index (RSI) fluctuated around 40 on the 14th, and if it continues to fall below this level, it may trigger further downward momentum.

In addition, the current short-term support level for EUR/USD is at the 1.0330 level. If it falls below this level, the price may further approach the 1.0200 level, which is an important psychological support level. On the upside side, the 20 day EMA around 1.0500 will form a strong technical resistance level, and if it breaks through this level, it may provide some rebound momentum for the euro.

Market sentiment and future trends

At present, the overall market sentiment remains cautious, and investors are paying attention to the changes in global monetary policy in 2025. The strong trend of the US dollar may continue to suppress the euro in the short term, especially against the backdrop of strong US economic data. At the same time, the sluggish economic growth and inflationary pressures in Europe have made the outlook for the euro uncertain.

Overall, the future trend of EUR/USD will continue to be influenced by the Federal Reserve's monetary policy expectations, the European Central Bank's interest rate adjustments, and global economic growth in the short term. Against the backdrop of low market liquidity during the holiday period, trading volatility may increase, but in the long run, the fundamental pressure faced by the euro remains significant, and there is still a need to be vigilant about potential downside risks.