- The EUR/USD exchange rate retained many of November's gains in early December trading, but technical resistance continued to thwart its path above the 1.06 resistance.
- US inflation data today, Tuesday, is likely to be decisive on whether it can overcome those obstacles on the charts in trading this week.
- EUR/USD's recent gains reached the resistance level at 1.0595, the highest level for the currency pair in five months, before it was exposed to profit-taking sales, reaching the support level at 1.0443, and settling around the level of 1.0521 at the time of writing.
- This confirms that the euro is trying to preserve the gains of the last bounce to ensure the continuation of the upward trend.
The European single currency - the euro - was bought with the US dollar selling heavily during the month of November as financial markets bet that inflation in the US and elsewhere is on the cusp of a prolonged decline. Data released on Tuesday will either confirm or beg for divergence on that notion with implications for the euro dollar rate.
Implications for Fed interest rates will determine year-end direction for the dollar and could drag the euro low enough to put the currently nearby 1.06 resistance out of reach even in the event of a hawkish surprise from the ECB this Thursday.
Commenting on this, Chris Turner, Market Analyst at ING says, “We note that there is still a slight risk of the ECB doing 75 basis points instead of 50 basis points – which would probably help the euro. But this of course comes after US CPI/FOMC risks.” The analyst added, “Given the 10% retracement of EUR/USD from its lows in late September, we would prefer that the EUR/USD pair struggles to sustain any gains above the 1.06 resistance this week and could end the week lower if required by US events.” ".
The consensus of economists expects that US inflation rose by 0.3% in November after increasing by 0.4% in October and by 7.3% for the year to the end of November, and after an increase of 7.7% in the year to the end of October with a similar rate. Expected declines for the most important core inflation rate. Core US inflation is expected to have increased by 0.3% after a 0.3% increase in October and by 6.1% for the year ending at the end of November after an increase of 6.3% in the year to the end of October and whether this forecast is correct. It will have a significant impact on the US Federal Reserve's decision tomorrow.
The Fed's decision is widely expected to see the upper limit of the federal funds rate range raised by half a percentage point to 4.5%, but more important will be the judgment of US monetary policymakers on whether rates need to be raised above the suggested top. 4.75% again. in the September forecast.
These details will be announced through the new expectations tomorrow, which will have a significant impact on US bond yields and the US dollar, and less than 24 hours after the European Central Bank’s decision on the final interest rate for this year, in which there is still uncertainty in the financial markets.
Uncertainty in the markets
The European Central Bank's decision on Thursday is widely expected to cap the fourth increase in European interest rates since July, but with uncertainty about the size of the increase as well as the Governing Council's position on the outlook for the coming months. This week's policy decision is also expected to contain details about the European Central Bank's plan to start shrinking the balance sheet that has been greatly expanded by the various quantitative easing programs announced since January 2015 and there is more uncertainty as to how markets will likely respond to that.
Technical forecasts for the euro pair against the dollar today:
The EUR/USD chart indicates that the upward movement that has been evident since the end of September is beginning to struggle. The market was not able to get rid of the twin risks presented by the 55-week moving average at 1.0594 and the 2020 low at 1.0636. These factors are currently acting as an effective barrier to the upside and the 6-week uptrend is being eroded. That leaves attention on the support provided by the 20-day moving average at 1.0420 and the 200-day moving average at 1.0349. And we also have cloud support that supports this support, which is available down to 1.0440 on the 4-hour chart. Above 1.0636 is the end of May high at 1.0787.
Today, the Eurodollar will be affected by the German ZEW Index and the US inflation through the Consumer Price Index.
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