Weak US NFPs and the Fed's dovish shift at the beginning of the month boosted the pair, which broke fresh ground this week and posted its best day of the year, with the help of Tuesday's US CPI report. Headline inflation eased to 3.2% y/y after recent persistence and the 4% increase in Core CPI was the smallest in two years. This bolstered market optimism that the Fed is done hiking and brought forward expectations around the timing of the first rate cut.
The technical outlook is vastly improved, giving EUR/USD the opportunity to tackle the 61.8% of the July-October slump and look towards and beyond 1.1069.
However, the monetary policy dynamics are a bit muddy at this stage. Fed officials have stressed the need for prolonged restrictive stance and they may have to do more to restore price stability. Inflation is far from the 2% target, the labor market is still tight despite cooling and the economy outperforms.
On the other side of the Atlantic, the European Central Bank stood pat after ten consecutive hikes and has hinted towards peak rates amidst economic slowdown, with Germany expected to contract by 0.3% this year . In line with preliminary data, today's report showed substantial deceleration of inflation in October, overcoming the limited progress up until recently. Eurozone headline CPI fell below 3% for the first time in more than two years and core eased to 4.2% y/y, which could allow ECB officials to stay on the sidelines.
This can limit the upside and push EUR/USD back to into the daily Ichimoku Cloud (starting at around 1.0755), but strong catalyst would be needed for an exit through the other side and the 2023 lows (1.0447) are now distant.
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.