EUR/USD Treads Water Ahead of US Inflation Update

  • EURUSD
    (${instrument.percentChange}%)

EUR/USD Analysis

Having made substantial progress on moderating price pressures, the European Central Bank has hinted at peak rates, but President Lagarde pushed back against any rate cut talk last month, saying that officials "did not discuss rate cuts at all" [1]. Last week's preliminary data, showed a reacceleration in headline inflation, which came in at 2.9% y/y in December, but core CPI eased further to 3.4% y/y.

Its US counterpart turned more dovish though and embraced lower rates, with December's projection implying at least three rate cuts this year [2]. Governor Bowman on Tuesday softened her stance, noting that policy "appears to be sufficiently restrictive" to achieve the 2% inflation target [3]. However, she stands ready to tighten further and Chair Powell had not closed the door to it either in December's press conference. [4]

Friday's employment report was rather strong, with the addition of 216,000 jobs in December, in what was the best print since September. With a still strong labor market, the economy outperforming and inflation above the 2% target, the Fed could be in for prolonged restrictive stance.

EUR/USD lacks firm direction over the past few days amidst the mixed data and muddy monetary policy differential. Coming from a profitable year and staying above the EMA200, the common currency is on the driver's seat with the ability to push towards the December high (1.1140) and beyond. On the other hand, the pair started the new year on the back foot and this creates risk for further correction towards 1.0722. The next leg of the move will likely be determined by Thursday's US CPI inflation update.

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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 09 Jan 2024 https://www.ecb.europa.eu/press/pressconf/2023/html/ecb.is231214~df8627de60.en.html

2

Retrieved 09 Jan 2024 https://www.federalreserve.gov/monetarypolicy/files/fomcprojtabl20231213.pdf

3

Retrieved 09 Jan 2024 https://www.federalreserve.gov/newsevents/speech/bowman20240108a.htm

4

Retrieved 22 Apr 2024 https://www.federalreserve.gov/mediacenter/files/FOMCpresconf20231213.pdf

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