We have often noted that the gains of the EUR/USD currency pair are subject to rapid evaporation, as the discrepancy in the future of tightening the policy of global central banks is still in favor of the US Federal Reserve. At the same time, the US economic performance is better than the bleak future of the recovery of the eurozone economy.
Accordingly, the EUR/USD currency pair was exposed to profit-taking sales, after testing the resistance level 1.0496 yesterday, the highest for the currency pair in five months. Selling the Euro-dollar pushed it towards the support level of 1.0325, and it settled around the level of 1.0350 at the time of writing the analysis.
Euro crosses suffered a setback after the latest economic data, which confirmed Germany following Spain and Belgium in reporting slowing inflation, provided ammunition for those who want the European Central Bank to ease the pace of interest rate increases. In this regard, the statistics office said on Tuesday that consumer prices in Europe's largest economy rose by 11.3% compared to a year earlier in November, down from October's jump of 11.6%, citing factors including energy costs for the slowdown. Analysts polled by Bloomberg had expected a gain of 11.3%.
In Spain, inflation eased for the fourth month and by more than expected, driven by lower electricity and fuel costs, although a measure of core prices accelerated. Meanwhile, the headline number in Belgium slowed to 10.6%. Inflation data for the 19-country eurozone is due on Wednesday, with economists also expecting a slight moderation - the first in a year and a half. This reading will be crucial as ECB officials weigh in for a third consecutive 75 basis point rise in borrowing costs, or a smaller half-point move before a possible recession. Some officials already favored a modest increase already in October, according to the account of that meeting, and their voices may grow louder if price growth appears to be ebbing.
Others are less convinced. European Central Bank President Christine Lagarde said Monday that she would be "surprised" if record gains in eurozone prices peaked, while Executive Council member Isabelle Schnabel recently said it may be too early to slow down interest rate hikes. Cool general inflation may prompt officials to focus more on the underlying metric in determining whether a tipping point has been reached. For his part, ECB Vice-President Luis de Guindos said on Tuesday that the basic measure is "the signal that we have to continue to follow."
Natural gas costs will be key in determining the course of inflation in Germany, which relied heavily on Russia as a resource before the war in Ukraine. The government is now scrambling to find other sources and preparing to subsidize the high bills of businesses and households.
Euro predictions against the dollar today:
- Despite yesterday's selling, the price of the EUR/USD currency pair is still in an initial stage to break the general bullish trend.
- The break may occur strongly if the currency pair moves towards the support levels 1.0220 and 1.0095, respectively.
- On the other hand, and over the same period of time, as mentioned before, the stability of the Eurodollar will remain above the resistance 1.0400, stimulating the bullish trend.
- We still prefer to sell the euro dollar from every upward level.
Today, inflation figures will be announced in the eurozone. In the United States, a package of important economic data, led by the ADP survey to measure the change in US non-farm payrolls and the growth rate of the US economy, then the statements of US Central Bank Governor Jerome Powell.
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