Euro edges lower after soft German data

• German industrial production declines
• Atlanta Fed’s Bostic says he expects two rate cuts in 2024

The euro has edged lower on Tuesday. In the North American session, EUR/USD is trading at 1.0928, down 0.20%.

German industrial production declines

The German locomotive continues to struggle as we start the New Year. German industrial production decelerated by 0.7% in November, compared to a revised -0.3% in October and shy of the estimate of a 0.2% gain. Industrial production has contracted for six successive months. The numbers were even worse on a yearly basis, as the -4.8% reading was the sharpest decline in almost three years. Germany’s economy contracted in the third quarter and another contraction in Q4 would mean that the economy is technically in recession.

The new year begins with new expectations from the Federal Reserve. After months of hawkish messages to the markets and warnings that interest rates could rise if inflation moves higher, the Fed jumped on the rate-cutting bandwagon at the December meeting. Still, the Fed is being more cautious than the markets as it has pencilled in three cuts this year, versus the six cuts that the markets have priced in. The markets are expecting an initial rate cut in March but had to trim the odds of that scenario after Friday’s nonfarm payroll report was stronger than expected.

The Fed doesn’t seem to be in any rush to lower rates, and Atlanta Fed President Bostic said on Monday that he was comfortable with a restrictive stance while inflation continues to move down toward the 2% target. Inflation has been falling but remains above the Fed’s 2% target and the Fed will want to see further progress on the inflation front before discussing any rate cuts. Bostic repeated that he expected two rate cuts this year and that he expected the first rate cut in the third quarter.

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EUR/USD Technical

• EUR/USD is tested support at 1.0922 earlier. Below, there is support at 1.0895
• 1.0951 and 1.0978 are the next resistance lines

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