At its meeting on December 18, the European Central Bank (ECB) left all keys unchanged and kept the deposit facility rate at 2.0%. The decision was widely anticipated and offered no new catalyst for a significant euro move. While the eurozone remained close to the 2.15% target in November, the ECB's updated projections saw a slight upward revision for the coming years, driven mainly by persistent price growth in the services sector.
At the same time, the ECB improved its growth forecast for 2025-2027. However, once the decision was fully priced in, it provided no additional support or pressure to the single currency.
The main driver for now comes from US monetary policy. The recent Federal Reserve from 4.00% to 3.75% has narrowed the yield spread between the and the . This reduces the dollar's advantage on interest rates and makes euro-denominated assets relatively more attractive, providing a moderate tailwind for the euro.
Looking ahead, medium-term dynamics will depend on relative expectations about central bank policy. If markets continue to price in a more aggressive easing cycle from the Federal Reserve compared to that of the ECB, the euro is likely to find further support. Conversely, any sign that the ECB is preparing to proactively ease its policy in response to the eurozone's economic weakness would limit the euro's upside potential.
Technical analysis: EUR/USD
H4 Chart:
On the H4 chart, the pair is consolidating near the breakout level of the lower boundary of the previous growth channel. We anticipate a break down from this range and a resumption of the third descending wave, with an initial target at 1.1650.
The MACD indicator technically confirms this bearish outlook. Its signal line is below zero and pointing decisively downward, reflecting sustained bearish momentum and the possibility of further declines.
H1 Chart:
On the H1 chart, the market completed another downward wave to 1.1702, followed by a correction to 1.1737. New bearish momentum is currently forming towards 1.1650. A sustained break below this level would indicate the possibility of an extended third wave, targeting the 1.1645 area as a local target.
This scenario is supported by the stochastic oscillator, with its signal line below the 50 level and trending firmly downwards.
Conclusion
The euro's trajectory remains more sensitive to changes in US policy expectations than to the ECB's predictable stance. While the narrow interest rate differential offers near-term support, the technical structure appears bearish. A decisive break below the current consolidation range could trigger a fresh move towards the support zone between 1.1650 and 1.1645.
By RoboForex Analysis Department
Disclaimer: Any forecast contained herein is based on the author's personal opinion. This analysis cannot be considered trading advice. RoboForex assumes no responsibility for trading results based on the trading recommendations and reviews contained herein.
