The EUR/USD pair is trading within a narrow range as the market awaits the outcome of the December Federal Reserve meeting. Neither buyers nor sellers are willing to take large positions on the EUR/USD pair, anticipating heightened volatility once the FOMC announces its decision. The only question is whether the buyers or sellers will take advantage of this volatility. The suspense continues: hawkish expectations may be exaggerated, yet they are justified, as the Federal Reserve cannot ignore the acceleration of headline inflation in the US.

Following the Fed meeting, the EUR/USD pair will either consolidate within the range around 1.04, with the potential to drop below 1.0400, or rise toward 1.06. It all depends on how concerned the central bank is about rising inflation.

If familiar statements emerge, suggesting that the rate-setting committee will moderate the pace of monetary easing in 2025, the market may interpret the Fed's stance as "not hawkish enough," putting pressure on the US dollar. On the other hand, if the Fed indicates that a rate hike in 2025 is not entirely off the table, the greenback will attract stronger demand, causing EUR/USD to resume its downtrend.

The suspense will resolve only at the close of the New York session on Wednesday, so current fluctuations should be considered with a high degree of skepticism.

At the moment, the EUR/USD pair is virtually treading water, drifting within a range of 1.0470 to 1.0540, a movement fueled by mixed fundamental factors.

For example, ECB President Christine Lagarde added pressure on the euro by stating that "the darkest times for inflation are behind us." She hinted that the regulator would continue to ease monetary policy despite rising CPI in the eurozone.

On the other hand, the single currency found some support in the contradictory PMI data. In the manufacturing sector (Germany, France, and the eurozone as a whole), business sentiment deteriorated further, with the respective indices falling below the 50-point threshold. However, the services PMI indices showed positive dynamics. In Germany, for instance, the indicator rose back above 50.0.

The IFO and ZEW indices released in Germany yesterday also presented a mixed picture. The IFO Business Climate Index fell to 84.7, the lowest level since October 2022, while the Current Assessment Index unexpectedly grew to 85.1 (stronger than an estimated decline to 84.0). Meanwhile, the IFO Expectations Index dropped to 84.4, marking the weakest result since February of this year.

At the same time, the ZEW Economic Sentiment Index for Germany surprisingly jumped this month to 15.7, the highest level since August, despite most analysts predicting a decline to 6.8 points. However, the German Current Situation Index continued its downtrend for the fifth month straight, reaching -93.1 in December (against a forecast of -92.6). On the other hand, the eurozone ZEW Economic Sentiment Index climbed in the green zone, rising to 17.0, exceeding expectations of a decline to 12.2 (from the previous value of 12.5).

In short, the PMI, IFO, and ZEW indices painted a mixed picture, allowing the European Central Bank to proceed with rate cuts at a measured pace, likely in 25-basis-point steps. These reports did not alter the ECB's intentions. There is no cause for optimism nor any reason to adopt a more aggressive pace of monetary policy easing.

A similar situation has developed across the Atlantic. Despite nearly all US macroeconomic reports coming in the "red zone", market expectations remain unchanged. Traders still anticipate a 25-basis-point rate cut in December and a pause in January.

For instance, the NY Empire State Manufacturing Index (based on a survey of about 200 manufacturers in New York State) plummeted in December to 0.2 points, a sharp drop from November's 31.2 points. Forecasts had expected a decline to 6.4 points.

The US Manufacturing PMI, meanwhile, not only remained in contraction territory but also dropped further to 48.3, missing forecasts of 49.4. However, the Services PMI in the US surged to 58.5, far exceeding expectations of a decline to 55.7—its strongest result since November 2021.

Retail sales in the US increased by 0.8% in November, a decent result that beat expectations of 0.6%. However, excluding auto sales, the figure rose by just 0.2% (versus a forecast of 0.4%), matching the previous month's performance.

On the downside, industrial production in November inched down by 0.1% (defying a forecast of +0.3%). While this marks the third consecutive month of decline, the pace of contraction is slowing (-0.5% in September, -0.4% in October, and -0.1% in November).

Market participants have taken note of these macroeconomic reports, but nothing more. The EUR/USD pair is still trading within the range of 1.0470 to 1.0540, awaiting the week's major events: the announcement of the Fed's December policy decision and the Core PCE Index report.

Opening any trading positions on the EUR/USD pair now is risky, as a further trajectory will be determined by the FOMC decision, which is expected to be announced tonight.