- The EUR/USD exchange rate could extend its near-term recovery during the trading week, analysts say, although many still see the market as a clear technical situation and not necessarily the beginning of a long-term recovery.
- The recent rebound gains for the EUR/USD extended to the resistance level 1.0365, its highest in three months.
- It is settling around the 1.0330 level at the time of writing the analysis, waiting for anything new.
Overall, the US dollar had a helping hand at the start of the new week, thanks in part to Fed Governor Christopher Waller's comments that the US central bank was nowhere ready to end its rate-raising cycle. Accordingly, the US dollar index, a measure of the dollar's performance against a basket of other major currencies, fell by 4% last week as investors responded to an unexpected drop in US inflation.
The data indicated that peak inflation in the US is at hand, so the Federal Reserve could consider slowing the pace of rate increases, with most investors now expecting a downward turn to a 50 basis point rise in December. But Waller said investors risk being swept along with the belief that the end of interest rate hikes is near. Waller added at a conference in Australia: "We're at a point where we can start thinking maybe going to a slower pace, but we're not slowing down...Stop caring about the pace and start paying attention to where the end point is going to be." Until we reduce inflation, that end point remains the avenues available.”
According to the performance, the EUR/USD exchange rate rose by 4.0% last week and is approaching those high levels at the beginning of the new week at 1.0325, which led to the return of bank transfer rates for individuals to a higher level of parity for the first time in weeks to nearly 1.0040. However, competitive payment professionals offer fares well above parity in the 1.03 region, according to our data.
Chris Turner, analyst at ING Bank says: “The severity of the EUR/USD correction has caught the attention of many (including us). And "this sounds very much like a posture adjustment function." Thus, the risk for those hoping for a stronger euro is that the recent rally proves to be largely technical in nature and the dollar begins to strengthen as investors heed the Fed's warnings that it is by no means over its rate-raising cycle.
Waller emphasized that while the US inflation data was welcome, it was still one reading. “The very difficult question is whether this short squeeze on EUR/USD has hit its course near 1.0365 or if it still needs to trade higher,” says ING's Turner. Markets have been investing heavily in the "long" dollar for a number of months now, an understandably common situation in a climate of falling stocks and accelerating US interest rates. According to Turner, the disposal of this large betting pile could continue over the coming days. The ING analyst adds that given the depth, conviction and one-sided nature of long dollar positions; we all need to be careful about calling prematurely to end this correction.
The data schedule for both the US and the Eurozone is light this week and the EUR/USD is likely to take guidance from global conditions and technical adjustments. We look forward to further comments from the Fed speakers and imagine they are following the same line as Wheeler in his warning that the Fed is not done.
EUR/USD Forecast:
According to the performance on the daily chart, the bullish transformation of the EUR/USD currency pair stands, and stability is above the resistance 1.0300. It is important for the bulls to control the trend and at the same time pushes the technical indicators towards overbought levels. If the euro does not get a new momentum, the currency pair may be exposed to a market selling. profits at any time. The closest targets are currently 1.0375, 1.0420 and 1.0500, respectively.
The Euro will be affected today by the announcement of the German ZEW reading and the growth rate of the Eurozone economy. The US dollar will be affected by the announcement of the inflation reading from the producer price index. On the other hand, and according to the performance over the same time period, the movement of the Euro-dollar towards the support level of 1.0120 will be important for the bears to dominate again.
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