Ahead of the release of the important US inflation figures later today, the price of the EUR/USD pair is trying to rebound higher, but its gains have not exceeded the resistance level of 1.0970, which is stabilizing around it at the time of writing. Currently, US dollar remains the strongest against other major currencies since the release of US employment figures at the end of last week, which were stronger than expected and support the path of tightening the US central bank's policy.
Meanwhile, inflation in the United States is expected to recede in 2024, ending the year near the Federal Reserve's 2% target as pandemic-related economic disruptions fade and even some commodity prices fall. Moreover, the decline should keep the US central bank firmly on the path of low interest rates, with cuts expected as early as March. President Joe Biden, for his part, may face difficulty in capitalizing politically on the campaign trail, especially if lower inflation comes alongside a broader economic slowdown.
The December report on consumer prices, which the US Bureau of Labor Statistics will release on Thursday, will give a taste of inflation in the coming months. Generally, prices for goods have stopped, and some, such as those for cars, are decreasing. This year is likely to be very soft. In this regard, Alain Demeester, an economist at UBS Investment Bank, said: “You are still likely to see things on hold through improving supply conditions.” “We expect to see a lot of slowdowns in the near term and slow down more gradually.”
Today's report is likely to show core inflation excluding food and energy rose to 3.8% in the 12 months through December, according to a Bloomberg survey. So, this would represent the slowest pace of increase since May 2021.
Over the past few months, inflation has fallen faster than economists on Wall Street and at the Federal Reserve have forecast big cuts in the US central bank's benchmark interest rate this year. Also, the surprising development was in no small part thanks to lower commodity prices, which fell for six straight months through November. Shortly, that's after a jump of about 16% from February 2020 to May 2023, when a surge in consumer demand and supply chain disruptions sent prices such as cars and apparel soaring.
US Federal Reserve officials discussed at a policy meeting last month whether supply chain improvements could continue to provide relief on prices, according to a review of the gathering published on January 3. Also, Economists wonder whether there is still more room for supply-side improvement.
Economists expect the Federal Reserve's preferred measure of US inflation to fall to 2.2% by the end of the year, according to a Bloomberg survey conducted in mid-December. Recently, Consumer surveys have shown improvements in sentiment around inflation expectations — though part of that may have to do with the decline in gas prices in the final quarter of the year. Grocery prices are still up a year ago — but they're not rising as quickly as they used to. On its own, low inflation should help President Biden as he campaigns for another term before the November election, with voters consistently citing prices and the economy in opinion polls as key considerations.
EUR/USD Technical Analysis and Forecast:
According to the performance on the daily chart above, the price of the EUR/USD currency pair is in a neutral position and is trying to rebound higher by breaking the psychological resistance of 1.1000, which motivates the bulls to take off. Technically, the resistance levels of 1.1020 and 1.1100 will remain the most important for strong and continuous control of the bulls over the trend. Ultimately, the currency pair may reach these levels if the US inflation numbers come in lower than all expectations. On the other hand, if the US inflation numbers come in better than expectations, the downward correction may continue, and it does not rule out breaking the 1.0880 support, which confirms the bears’ control and preparation for stronger losses.
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