Last week's trading in its entirety was characterized by bulls dominating the performance of the EUR/USD currency pair. Its gains during those trading were bullish, towards the 1.0888 resistance level, the highest for the currency pair in nine months. It closed the week's trading stable around the level of 1.0855. Its gains were primarily amid the decline of the dollar. Calming expectations about the future of tightening the US Central Bank's policy, in addition to recent indications that the European Central Bank is determined to tighten until the record inflation caused by Corona and the Russian-Ukrainian war is contained.
Economic Analysis:
EUR/USD is trading on the back of the announcement that the German PPI for December was outperformed (MoM) at -1.2% with a change of -0.4%. The equivalent (yoy) also beat 20.8% with a change of 21.6%, while the seasonally adjusted and non-seasonal current account balance for November beat estimates of €2.8 billion and €9.3 billion respectively with €13.6 billion and €13.4 billion.
From the US, US Building Approvals for December missed the figure of 1.37M with a lower toll of 1.33M (MoM). Housing starts for the forecast period exceeded 1.359 million with an increase in proceeds of 1.382 million. US Initial Jobless Claims for the week ending January 13th exceeded the expected claims count at 214K with an overall decrease of 190K. Elsewhere, the Philadelphia Fed Manufacturing Survey for January beat the expected reading of -11 with a reading of -8.9.
Factors of influence and expectations for the euro / dollar:
The US central bank is on track to cut US interest rates as early as mid-2023 according to new research, and the euro will "significantly" appreciate against the dollar as a result. As a result, TS Lombard - an advisory firm and independent economic research provider - advises that it has changed its views as a result and is now a "dollar bear".
That's according to Skylar Montgomery Koning, senior analyst at TS Lombard. In their view, the Fed is expected to raise US interest rates by another 25 basis points in February, but TS Lombard says this will be the last based on clear evidence of inflation slowing sharply and the first cut will follow in the middle of the year.
The US economy is slowing sharply with the latest sign coming from US retail sales which fell by -1.1% both overhead and core in December, which was sharper than markets had expected at -0.8%. Accordingly, the price of the dollar declined after these figures, and the exchange rate of the euro against the dollar (EUR / USD) rose to a new multi-month high at 1.0887, before falling back to the lowest 1.08.
TS Lombard says the market will move into price in recessions and corresponding cuts, creating downward pressure on yields and an upward slope in the yield curve. US bond yields are set to underperform those elsewhere, sending the dollar lower against several currencies.
Technical forecasts for the EUR/USD pair:
- According to the performance on the hourly chart, it appears that the EUR/USD is trading within a bullish channel formation.
- This indicates a significant short-term bullish momentum in market sentiment.
- Therefore, the bulls will be looking to extend the current series of gains towards 1.0871 or higher to the resistance at 1.0887.
- On the other hand, bears will be looking to pounce on potential pullbacks around 1.0835 or below at 1.0815 support.
On the long run, and according to the performance on the daily chart, it appears that the EUR/USD is trading within forming a sharp bullish channel. This indicates that there is a strong long-term bullish momentum in the market sentiment. Therefore, the bulls will target the long-term profits at around 1.0931 or higher at the resistance at 1.1037. On the other hand, the bears will target pullback profits around 1.0724 or lower at support 1.0608.
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