In all of last week's trading, the price of the EUR/USD currency pair was in an upward retracement. As a result, it recorded the resistance level of 1.0595, and closed the week's trading close to those highest gains in more than five weeks. It may remain in this move until the markets and investors react to the decisions of global central banks this week, led by the US Federal Reserve and the European Central Bank.
Last week, before the announcement of US inflation figures this week and monetary policy decisions of the US Federal Reserve. US producer prices rose 7.4% in November from a year earlier, a fifth consecutive slowdown and a hopeful sign that inflation pressures across the economy continue to slow. The latest figure was down year-on-year from 8% in October and from a recent high of 11.7% in March. On a monthly basis, the US government said on Friday that its producer price index, which measures costs before they reach consumers, rose 0.3% from October to November for the third consecutive month.
The latest figures reflect an ongoing shift in US inflation from goods to services. The cost of goods rose just 0.1% from October to November, with wholesale gas prices falling 6%. Services prices, in contrast, rose more, up 0.4%, led mostly by more expensive financial services. Despite this, the cost of wholesale airfare and hotel rooms has fallen, and overall service prices have slowed in the past three months.
Producer price data released on Friday catches inflation at an early stage of production and can often indicate the direction in which US consumer prices will head this week. The government will announce the highest inflation figure, the Consumer Price Index. The latest US Consumer Price Index report for October showed a moderate decline in inflation, with prices rising 7.7% from a year earlier. Although still high, it was the lowest annual number since January.
For his part, US Federal Reserve Chairman Jerome Powell, in a recent speech, referred to the decline in commodity prices as an encouraging sign. Powell noted that housing costs, including rent, which have been a major driver of inflation, should start to slow next year. The Fed chairman also indicated that the US central bank is likely to raise the benchmark interest rate in smaller increments when it meets next week. Investors expect the Fed to increase by half a point, after four consecutive three-quarter point increases. However, Powell noted that prices for services, which reflect the largest sector of the US economy, are still increasing at a historically rapid pace. He pointed out that the rapid rise in wages is the main driver of service inflation. That's because as wages rise, many companies pass higher labor costs on to their customers through higher prices, which leads to higher inflation.
EUR/USD forecast today:
- There is no change in my technical point of view for the performance of the price of the EUR/USD currency pair, as the general trend is still bullish.
- Breaking the current 1.0600 resistance confirms the bulls’ control, the technical indicators are moving towards overbought levels.
- In the event of the return of the tightening tone of the US Federal Reserve, it will be positive for the dollar, and therefore the euro-dollar may be exposed to profit-taking sales.
On the contrary, the euro / dollar may move towards the resistance levels 1.0655 and 1.0720, respectively. On the other hand, on the daily chart, the movement of the EUR/USD pair towards the support levels 1.0430 and 1.0380 will be important to change the general outlook of the pair to bearish.
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