EUR/USD, GBP/USD Technical Outlook: Price Action Setups to Watch

5 days ago

3 minutes read

2024.12.13 05:31

The ECB implemented a 25bps rate cut, with some policymakers favoring a larger 50bps cut, and signaled potential for further cuts in the upcoming meetings.
The BoE is expected to hold rates at its next meeting, and market participants are watching for indications of fewer rate cuts in 2025.
EUR/USD is struggling to maintain levels above 1.0500, and GBP/USD faces potential downside below 1.2654.

and have been frustrating pairs to watch over the past three weeks. Following a dollar-fueled post-election selloff both pairs have been on a grind higher. However, the recent resurgence in the and fears around the impacts of US tariffs have kept both pairs under notable periods of selling pressure.

ECB Policymakers Expect More Rate Cuts

The delivered a 25bps rate cut today with some policymakers in favor of a 50bps cut. There were mixed views at the ECB meeting with the threat of tariffs featuring front and center.

Among the opposing views shared by policymakers was the fact that global uncertainty continues to reign supreme and thus rushing policy may not be wise. The opposing view to this is that the ECB may be overestimating growth with growth of less than 1% likely under Trump tariffs.

Given the developments today one policymaker stated that the ECB is prepared for two more 25bps cuts at the next two meetings. Concerns around growth and the need for more rate cuts in 2025 have held gains for the Euro at bay, in particular against the greenback.

GBP/USD Challenges Ahead

The Bank of England (BoE) faces similar challenges when it comes to rate cuts next year. However the upcoming meeting is looking likely to be a hold from the Central Bank and that could be what market participants are waiting for.

Bulls may be looking for confirmation that the BoE is considering fewer rate cuts in 2025 than previously anticipated. Such a move or hint of such a move could catalyze cable to regain the 1.3000.

My reasoning for this comes down to the US Dollar Index and the potential developments we could see over the next 12 months.

US Dollar Index

The US Dollar has been on a tear since the US election with its performance reverberating across a host of asset classes and setting up an interesting year end and 2025. I thought this may be a prudent time to look at the performance of the US Dollar post the 2016 US election for a historical perspective.

After both the 2016 and 2024 elections, stocks and the US dollar went up. However, in 2017, the dollar lost strength, entering a downward trend that lasted most of the year. This weakness in the dollar helped support a steady rise in U.S. and global stock markets.

Looking at where the is currently resting in a key area of resistance. Will the recent uptick in inflation be a driving force for the US Dollar moving forward or will the Fed succeed in keeping things on an even keel?

Technical Analysis on EUR/USD and GBP/USD

EUR/USD has struggled to find acceptance above the 1.0600 handle for the better part of three weeks.

The 1.0500 handle had held steady over the past few weeks as well following a brief stint below. The rate cut today however has pushed the pair below the 1.0500 handle with a retest now of the lows at 1.0400 and 1.03310 handles respectively.

A pushback above the 1.0500 handle will not convince me of bullish momentum until we see a daily candle close above the purple block on the chart, which rests around the 1.0600 handle. That should bring the long-term descending trendline into focus with a break providing further evidence of a shift in momentum.

EUR/USD Daily Chart, December 12, 2024

Source: TradingView.com

Support

Resistance

GBP/USD

Looking at cable, there appeared to be a trendline breakout on Monday but it failed to gain momentum. The 200-day MA rests just above the weekly highs at 1.2821 and has served to cap any further gains.

Today’s selloff was largely facilitated by the rise in the US Dollar Index following a slight uptick in PPI data. However with the DXY now at a crossroads is further downside still realistic on cable?

For now I will be closely monitoring the swing low at 1.2654 on the daily timeframe with a candle close below this level seeing a change in structure. This could provide bears with renewed impetus moving forward.

Conversely, a bounce of this support level and a push back above the trendline may be a good sign that bulls are eyeing control. A break of the 200-day MA could be needed though for the move to gain significant traction and run toward the 1.3000 psychological level.