EUR/USD: Eyeing ECB, German vote - OCBC

For Euro (EUR), the focus is on ECB tomorrow before Germany's vote of confidence next Monday. German Chancellor Scholz is expected to call for a vote of confidence today and the Bundestag will vote next Monday on 16 December. Political risks in Europe and concerns of dovish ECB may continue to limit the extent of any EUR's upmove, until we get some clarity, OCBC's FX analyst Christopher Wong notes.

Consolidation very much likely

"To survive the vote, Scholz would need to receive the support of an absolute majority of 367 votes. But in the event, he fails, then Germany is likely to make way for elections on 23 February 2025. Far-right AfD is calling for Germany to leave the European Union, the EUR and Paris climate deal as the party prepares for early elections in Feb-2025. The concern here is the explicit language to quit EU unlike its manifesto ahead of the European parliament elections previously in Jun-2024."

"Tomorrow, ECB meeting takes centerstage. Markets are now pricing just a 25bp cut but OISimplied has priced in back-to-back cuts for 1H next year, taking rates to below 2% in June 2025, or even 1.75% in July. The aggressive dovish pricing reflects a recession-driven rate cut cycle rather than a policy normalization. Nevertheless, we will pay closer attention to Lagarde's press conference for clues on how policymakers assess growth outlook to be."

"Daily momentum is mild bullish but RSI fell. Consolidation likely. Broader price pattern shows a classic formation of an inverted head & shoulders pattern, which is typically associated with a bullish reversal. Neckline comes in at 1.0610/20 levels. Break-out puts 1.0670 (38.2% fibo) within reach before next resistance comes in at 1.0750/75 levels (50 DMA, 50% fibo). Support at 1.0540/50 levels (23.6% fibo, 21 DMA), 1.0460 levels."