The euro has a chance to end 2023 above the $1.10 level, which seemed completely off the table just a few weeks ago when the dollar was regaining strength and bets on European Central Bank rate cuts were rising sharply. Despite the mixed narratives that emerged from the recent meetings of the European Central Bank and the US Federal Reserve, the rebound rally for the EUR/USD currency pair has reached the resistance level of 1.1040, the highest level for the pair in four months.
Despite the recent upward rebound in the currency pair, in the middle of the Christmas holidays and amid weak liquidity, a breakout to the upside is not guaranteed at all. The EUR/USD formed a double top pattern as traders reflected on the recent decisions of the European Central Bank and the US Federal Reserve. Recently, the EUR/USD pair has been in the spotlight as investors react to key economic numbers and events. Recently, the United States published the latest inflation figures, which showed that prices remained at a high level.
According to the Bureau of Labor Statistics (BLS), the headline US Consumer Price Index (CPI) fell slightly to 3.0% in November. Core inflation, which excludes volatile food and energy prices, remained at 4.0%. furthermore, then the other crucial event came when the US Federal Reserve published a relatively dovish monetary policy statement. As expected, the bank decided to leave US interest rates unchanged between 5.25% and 5.50%.
Most importantly, the bank indicated cuts in US interest rates three times in 2024. Accordingly, analysts believe that the bank could begin these cuts in March if US inflation continues to decline. They also see the bank offering more than three interest rate cuts. Therefore, this would represent a major change in the position of the US Federal Reserve, which has adopted a very hawkish tone in the past two years. In all his statements, Jerome Powell has pointed to a higher position for a longer period.
Moreover, the other important news between the euro and the US dollar occurred when the European Central Bank (ECB) announced its decision. Like the US Federal Reserve, the ECB decided to leave interest rates unchanged at 4.25%. Nevertheless, unlike the US Federal Reserve, the ECB signalled that it would keep interest rates high for a longer period. Also, it indicated that inflation would remain above the target level for longer. It expects the average inflation to be 5.4% in 2023, 2.7% in 2024, and 2.1% in 2025. This was a lower inflation target than previously estimated.
EUR/USD technical Analysis Today:
The daily chart below shows that the price of the EUR/USD has formed a double top pattern at the level of 1.1014. In price action analysis, this is one of the most accurate bearish signals in the market. The neckline of this pattern is located at 1.0723. More importantly, the pair has formed a head and shoulders pattern, which is a bearish signal. Therefore, there is a possibility that the pair has a bearish signal. If this happens, the initial target to watch will be the neckline at 1.0723. shortly, we still expect movements in very narrow ranges considering the holidays, during which liquidity is low. Therefore, investors are reluctant to take risks until the markets return to their full normal functioning.
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