EURUSD is showing an emerging uptrend as the dollar weakens amid the prospect of the Federal Reserve (Fed) cutting interest rates next year.
Last week's Fed meeting brought an unexpected twist. Chairman Jerome Powell said the historically tight monetary policy, which led to the highest rates in decades, was likely over thanks to slowing inflation. U.S. central bank officials are now forecasting a 75 basis point rate cut next year.
Typically, rate cuts are considered unfavorable for the dollar, making assets denominated in the U.S. currency less attractive to investors. Although strategists expected the dollar to weaken next year, a faster pace of rate cuts could accelerate the currency's decline.
However, investing in a falling dollar has been risky lately, and many investors are in no rush to sell the dollar. A strong U.S. economy that outperforms other countries could hinder those betting on a decline in the U.S. currency.
Markets estimate the probability of the Fed cutting rates in March at about 75%, according to CME's FedWatch tool.
Investors now await the November report on the consumer price index, the Fed's preferred measure of core inflation, which will be released on Friday.
Meanwhile, eurozone inflation slowed to 2.4% in November 2023 compared to a year earlier, reaching its lowest level since July 2021. This was reported by Eurostat.
These figures are in line with the initial estimates and forecasts of analysts surveyed by Trading Economics. In October 2023, annual inflation in the eurozone stood at 2.9%.
Despite the slowdown, inflation is still above the European Central Bank's 2% target. This statistic did not increase volatility in euro currency pairs.
EURUSD quotes are forming an uptrend on the D1 time frame.
In terms of wave analysis, the price is currently forming the third ascending wave on the H4 timeframe. Breaking through the top of the first wave at the level of 1.1015 may strengthen the upward movement.
Short-term prospects for EURUSD suggest buying.
The target is at the level of 1.1280.
Part of the profit should be taken near the level of 1.1120.
A stop-loss could be placed at the level of 1.0760.
The bullish trend is short-term, so trade volume should not exceed 2% of your balance.