EUR/USD Treads Water Ahead of US Inflation Data

  • EURUSD
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EUR/USD Analysis

Last week the US Federal Reserve had slowed down the pace of its tightening cycle, but maintained its aggressive stance, while officials raised their projections for the appropriate policy path. They now expect rates to peak at median of 5.1%, which implies another 75 basis points worth of hikes. [1]

Similarly, the European Central Bank downshifted to a 50 basis points increase, but was also very aggressive and actually out-hawked its US counterpart. It signaled further tightening, with Ms Lagarde saying that rates will need to rise "at a 50-basis-point pace for a period of time", opening the door to potentially 100 bps of hikes. [1]

The pair extended its advance to six-month lows last week and broke above the key 38.2% Fibonacci of the 2021 high/2022 lows rise. However it has lost its vigor and consolidates around this region as investors assess the monetary policy path of the ECB an and the Fed and the holiday lull kicks in.

Markets now await Friday's US PCE figures, the Fed's preferred measure of inflation, which can create volatility and determine the USDOLLAR's trajectory. Headline PCE had decelerated to +6.0% y/y in October and the lowest reading of the year, while the Core figure eased to 5% y/y.

EUR/USD is in the driver's seat and has the ability to push for fresh highs towards 1.0787, but will need a catalyst to challenge 1.1000.

Momentum has stalled though, at the critical 38.2% Fibonacci and as long as it does not break fresh ground, EUR/USD is susceptible to downward pressure back towards 1.0500. However, Daily closes below the EMA200 (1.0400) that would shift bias to the downside, does not seem easy under current conditions.

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Nikos Tzabouras

Senior Financial Editorial Writer

Nikos Tzabouras is a graduate of the Department of International & European Economic Studies at the Athens University of Economics and Business. He has a long time presence at FXCM, as he joined the company in 2011. He has served from multiple positions, but specializes in financial market analysis and commentary.

With his educational background in international relations, he emphasizes not only on Technical Analysis but also in Fundamental Analysis and Geopolitics – which have been having increasing impact on financial markets. He has longtime experience in market analysis and as a host of educational trading courses via online and in-person sessions and conferences.

References

1

Retrieved 20 Dec 2022 https://www.federalreserve.gov/monetarypolicy/fomcpresconf20221214.htm

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