The euro price remained the best performer against the US dollar since the start of trading this week. The gains of the upward rebound for the EUR/USD currency pair reached the 1.0673 resistance level, the highest for the currency pair in six months. It settled around the 1.0625 resistance level, ahead of the next most important event for the markets this week, which is updating decisions of the monetary policy of the US central bank.
The Fed will feel justified in slowing the pace of rate hikes after US inflation eased expectations in November. Accordingly, the price of the dollar fell, and stock indices rose in the second consecutive reading of inflation. This indicates that the price hike was subdued and that the Federal Reserve could afford to back down from raising interest rates, allowing investors to pause on the horizon.
According to official figures, headline US consumer price inflation grew by 7.1% in the year to November the BLS said, which is a significant drop from 7.7% in October and is well below the consensus forecast of 7.7%. Inflation rose 0.1% in the month through November, slower than the expected 0.3% and October's reading of 0.4%.
Core inflation, arguably more important to the Fed's estimates, also fell to 6.0% year over year, slowing from 6.3% in October and below expectations of 6.1%. The month-over-month increase in the core was set at 0.2%, below the October consensus of 0.3%. Commenting on the figures, Joe Manimbo, senior market analyst at Convera, said: “DXY fell to its lowest levels in June after cooler-than-expected US inflation pushed the Fed's most aggressive tightening cycle in decades a step closer to the finish line. "
Mike Owens, Head of Sales Trader at Saxo UK. “EUR/USD reached 1.0650 resistance and GBP/USD reached 1.2438, its highest price against the dollar since June.” “There was some good news on the US inflation front in November, as prices slowed more than expected,” says Kathryn Judge, economist at CIBC Capital Markets. “Although the downside surprise is a welcome development, However, the Fed is still on track to raise interest rates by 50 basis points today as the downtrend has concentrated in some components, and the labor market remains tight.”
A breakdown of the data reveals that despite the decline in energy and food prices, pockets of resistance remain in the price dynamics. Notably, service inflation remains flat as it adjusts to the previous wave of supply-side inflationary pressures. The Federal Reserve is expected to raise US interest rates by 50 basis points on Wednesday and raise its forecast for peak interest rates.
EUR/USD forecast today:
- According to the performance on the daily chart below, the price of the EUR/USD currency pair is on an upward track.
- The breach of the resistance 1.0675 confirms this, and at the same time pushes the technical indicators towards overbought levels.
- Today, if the tone of the US Federal Reserve's policy statement and its governor's hawkish statements came, the euro-dollar pair may be exposed to profit-taking sales.
- The trend will not change to the downside again without moving towards the support levels 1.0525 and 1.0440, respectively.
On the upside, calming the tone of US tightening will give the euro dollar the opportunity for more bullish movement according to the current path, and accordingly the resistance 1.0785 will be the next destination for the bulls.
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