The EUR/USD pair continues to trade within a narrow price range as markets await this week's key events. First, the announcement of the FOMC's December meeting results on Wednesday, and second, the release of the Core PCE Index on Friday. These events will serve as the final major drivers of the year, as next week, much of the Western world will be celebrating Christmas, followed closely by New Year's. Many global markets will close during this time, and trading activity will slow significantly, entering a holiday-induced lull until early January.

Today's apathy among EUR/USD traders is understandable—the calm before the storm. The Federal Reserve's decision and subsequent commentary could reshape the fundamental outlook for the pair, strengthening or weakening the U.S. dollar. Uncertainty persists over how the Fed will respond to November's accelerating CPI and PPI data. These reports were released during the "blackout period," meaning no Fed officials have commented on them. Amid such uncertainty, market participants hesitate to open large positions in EUR/USD.

Interestingly, traders largely ignored the European PMI reports.

Germany's Manufacturing PMI dropped to 42.5 (vs. 43.1 expected), remaining in contraction territory and showing a worsening trend. The Services PMI, however, surprised positively, rising to 51.0 (vs. 49.2 forecast), returning to expansion territory.

Pan-European indicators reflected a similar picture. The Manufacturing PMI held steady at 45.0, remaining in contraction territory. The Services PMI climbed to 51.4, surpassing the 50-mark and signaling expansion.

Despite these mixed signals, the market largely brushed off the release. Why? It's not just the upcoming FOMC meeting casting a shadow. December's PMIs, while reflecting some improvement in services, highlight persistent pessimism in manufacturing. This dual narrative supports the European Central Bank's continued path of gradual monetary policy easing, as indicated during its December meeting.

In Vilnius, ECB President Christine Lagarde reaffirmed the central bank's stance. While acknowledging that "the darkest days of winter are behind us," she stated that inflation is moving toward its target. Lagarde emphasized that further rate cuts are forthcoming, as restrictive monetary policy is no longer necessary given weak economic growth and easing price pressures.

This dovish tone aligns with the ECB's downgraded 2024 GDP growth forecast and the removal of the statement in its communique that rates would remain restrictive as long as necessary to achieve inflation goals.

The market responded calmly to Lagarde's remarks, reiterating points already outlined in the ECB's post-meeting communication. Similarly, the mixed PMI results neither softened nor hardened the ECB's stance, leaving the baseline scenario unchanged with further 25-basis-point rate cuts.

The baseline scenario for the Fed's December meeting also anticipates a 25-basis-point rate cut. However, expectations are growing that the Fed will adopt a hawkish tone, with revised dot plot projections signaling a potential slowdown in the pace of monetary easing. For instance, CME FedWatch data indicates a 14% chance of a January rate cut (following a December cut), with an 86% chance of a pause. These hawkish expectations provide underlying support for the U.S. dollar.

Currently, the EUR/USD pair remains in a holding pattern. Neither buyers nor sellers are willing to take significant risks ahead of the Fed's December meeting. Mixed PMI data, dovish signals from Lagarde, and other fundamentals have had little impact on price action. The pair continues to trade within a range of 1.0430–1.0540 (corresponding to the lower Bollinger Bands line and Tenkan-sen line on the daily chart). This range is a "waiting zone," likely to persist until the Fed's decisions are announced.