EUR/USD refreshes weekly high as US Dollar corrects, flash Eurozone HICP eyed

• EUR/USD climbs to near 1.0580 as the US Dollar extends its correction.
• Investors await the preliminary Eurozone HICP data for November, which will influence the ECB’s likely interest rate cut size prospects.
• ECB’s Villeroy keeps hopes of an outsize interest rate cut in December on the table.

EUR/USD gains as the US Dollar (USD) extends its downside in a holiday-truncated week. The US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, extends its correction below 106.00 on Friday. The USD Index started correcting on Monday after United States (US) President-elect Donald Trump nominated Scott Bessent, a veteran hedge-fund manager, for the role of Treasury Secretary.

Financial markets anticipated that Bessent would enact Trump’s economic agenda without disrupting external relations and fiscal discipline. “The objective of enacting tariffs will be “layered in gradually and the budget deficit will be reduced to 3% of Gross Domestic Product (GDP) by slashing spending, a move that won’t result in higher inflation than feared,” Bessent said in an interview with the Financial Times (FT) last weekend.

On the monetary policy front, market experts expect the Federal Reserve (Fed) to be cautious about interest rate cuts as the core Personal Consumption Expenditures Price Index (PCE) data, the Fed’s preferred inflation gauge, accelerated in October. The probability that the Fed will cut interest rates by 25 bps to the 4.25%-4.50% range in the December meeting is 66%, while the rest supports leaving them unchanged, according to the CME FedWatch tool.

In Friday’s session, the US Dollar is expected to remain sideways as US markets will open for limited hours on account of Thanksgiving holidays. For the next week, investors should brace for high volatility as a slew of employment and economic data will be published.

Daily digest market movers: EUR/USD advances despite weak German Retail Sales data

• EUR/USD posts a fresh weekly high near 1.0580 in the European session on Friday ahead of the flash Eurozone Harmonized Index of Consumer Prices (HICP) data for November, which will be published at 10:00 GMT. The inflation report is expected to show that the annual headline and core HICP – which excludes volatile food and energy prices – accelerated to 2.3% and 2.8%, respectively.
• Investors will pay close attention to the inflation report to get fresh cues about the European Central Bank’s (ECB) likely interest rate cut size in the December meeting. The ECB has already reduced its Deposit Facility Rate by 75 basis points (bps) to 3.25% this year.
• Traders expect the ECB to cut its key borrowing rates at least by 25 bps in the December meeting. For 2025, traders see the ECB cutting interest rates in every meeting through June, pushing the Rate on Deposit Facility lower to 1.75% by the year-end, according to Reuters.
• Market speculation for the ECB to cut interest rates by a larger-than-usual size of 50 bps is upbeat as officials are worried about growing economic risks. The two largest economies of the Eurozone, Germany and France, are going through a rough phase due to political uncertainty, a scenario that slows down government spending activities.
• Also, weak German Retail Sales data for October points to economic stagnation. Month-on-month Retail Sales contracted by 1.5% after rising 1.2% in September. Economists expected the Retail Sales data, a key measure of consumer spending, to decline at a slower pace of 0.3%. On year, the consumer spending measure rose by 1%, slower than estimates of 3.2% and the prior release of 3.8%.
• ECB Governing Council member and Governor of Bank of France François Villeroy de Galhau kept the option of an outsize interest rate cut on the table in his speech on Thursday. “Seen from today, there is every reason to cut on December 12. Optionality should remain open on the size of the cut, depending on incoming data, economic projections, and our risk assessment,” Villeroy said.

Technical Analysis: EUR/USD jumps to near 1.0600

EUR/USD extends its upside to near 1.0580 on Friday. The recovery in the major currency pair appears to be a mean-reversion move, which could extend to near the 20-day Exponential Moving Average (EMA) around 1.0600. Still, the broader outlook would remain bearish as all short-to-long-term day EMAs are declining, pointing to a downside trend.

The 14-day Relative Strength Index (RSI) rebounded after conditions turned oversold and climbed above 40.00, suggesting that the bearish momentum has faded. However, the bearish trend has not been extinguished.

Looking down, the November 22 low of 1.0330 will be a key support for Euro bulls. On the flip side, the 50-day EMA near 1.0747 will be the key barrier.