EUR/USD Cautious at Familiar Levels Ahead of EZ & US Inflation

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EUR/USD Analysis

The pair has staged a notable turnaround from October's 2023 low and pushes for the conclusion of its best month of the year. However, there are key economic releases ahead that will determine the next leg of the move, with Thursday's inflation updates from Eurozone and the US (PCE) standing out.

The most recent data from two weeks ago showed that that US Consumer Price Index decelerated significantly, with core CPI rising at the slowest pace in two years. Although not completely pricing out more tightening, markets are convinced that the Fed won't hike again, focusing instead on the timing of the first rate cut.

This has weighed on the greenback, helping EUR/USD to this month's surge and the highest levels since summer. This brings 1.1096 in the spotlight, but the bulls will need fresh impetus to tackle it and we remain cautious around the ascending prospects.

The move looks stretched and the common currency struggles again to clear the 61.8% Fibonacci of the July-October drop, which it had rejected last week. This crates scope for a slide back towards the EMA200 (at around 1.0760). Daily closes below it would pause the upside bias, but that would need strong catalyst and the daily Ichimoku Cloud can contain further weakness.

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Even though the Fed has become less aggressive, it may still need to do more to restore price stability and has not closed the door to more hikes. Inflation is still far from the 2% target, while the labor market and the economy are strong despite signs of cooling.

On the other side of the Atlantic, the ECB paused its tightening cycle last month and has hinted to peak rates. Economic activity is weak and substantial progress has been made on inflation recently, as Eurozone CPI fell below 3% in October, for the first time in more than two years. As such, policymakers could stay on the sidelines and we have seen some dovish remarks, but President Lagarde warned yesterday that it's "not the time to start declaring victory" and reiterated the need for prolonged restrictive stance. [1]

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 Feb 2024 https://www.ecb.europa.eu/press/key/date/2023/html/ecb.sp231127~a4af2f4e28.en.html

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