The EUR/USD currency pair resumed its downward trend on Thursday, breaking below the moving average line once again. The decline actually began on Wednesday evening. It's worth noting that after the release of the U.S. inflation report, the dollar experienced a sharp drop but recovered strongly within a few hours. The December inflation report presented mixed results: while the core inflation rate decreased, the headline inflation rate increased. We maintain that the headline figure is more significant. It rose, albeit within forecasts, but the crucial factor now is not whether the actual figure matched expectations—rather, it is that inflation is on the rise. This suggests that the Federal Reserve, which has already indicated no urgency in easing monetary policy, may continue this cautious approach throughout 2025. Why would they ease policy if inflation has been rising for three consecutive months, the economy is robust, the labor market is strong, and unemployment remains at acceptable levels?

This situation is a critical factor for the currency market and the dollar. In 2024, the market had anticipated at least six rate cuts but barely saw three. For 2025, only two cuts were projected, but it now seems likely that even these may not happen. As mentioned, U.S. inflation is increasing and could rise further under Donald Trump due to his determination to impose tariffs on various countries. This indicates that market expectations were once again overly dovish—this time focusing on just two rate cuts over the next eight meetings.

The U.S. dollar is rising again, primarily because the underlying economic conditions indicate that the market has overestimated the number of Fed rate cuts. In contrast, macroeconomic data from the Eurozone continues to be disappointing. The economy is barely growing, and European Central Bank officials are considering lowering the key interest rate to 2% by summer. This suggests that the ECB is now prioritizing the health of the European economy over concerns about inflation and may conclude its cycle of monetary policy easing by summer.

Looking ahead to 2025, it is evident that the ECB will likely cut rates more aggressively and more quickly than the Fed. This leaves the euro with few opportunities for growth, much like the situation we've seen previously. Once again, the euro failed to reach even the most recent local high and now seems to be heading toward parity, or at least the 1.0100 level.

As of January 17, the average volatility of the EUR/USD currency pair over the last five trading days is 78 pips, which is characterized as "moderate." We expect the pair to trade between 1.0225 and 1.0381 on Friday. The higher linear regression channel is facing downward, indicating a continuation of the global bearish trend. The CCI indicator has recently entered the oversold zone twice, forming two bullish divergences; however, these signals suggest only a potential correction.

Closest Support Levels:

• S1 – 1.0254
• S2 – 1.0193
• S3 – 1.0132

Closest Resistance Levels:

• R1 – 1.0315
• R2 – 1.0376
• R3 – 1.0437

Trading Recommendations:

The EUR/USD pair is likely to maintain its downward trend. In recent months, we have consistently anticipated a depreciation of the euro in the medium term, fully supporting the bearish outlook. We do not believe this trend has run its course. There is a significant chance that the market has already priced in all future rate cuts from the Federal Reserve. As such, there are currently no fundamental reasons for a medium-term decline in the dollar beyond corrections.

Short positions remain relevant, with targets set at 1.0225 and 1.0191, especially if the price consolidates convincingly below the moving average. If trading solely on a technical basis, long positions could be considered if the price rises above the moving average, with a target of 1.0437. However, any upward movement at this time should be viewed merely as a correction.

Explanation of Illustrations:

Linear Regression Channels help determine the current trend. If both channels are aligned, it indicates a strong trend.

Moving Average Line (settings: 20,0, smoothed) defines the short-term trend and guides the trading direction.

Murray Levels act as target levels for movements and corrections.

Volatility Levels (red lines) represent the likely price range for the pair over the next 24 hours based on current volatility readings.

CCI Indicator: If it enters the oversold region (below -250) or overbought region (above +250), it signals an impending trend reversal in the opposite direction.