- Due to coordinated directives from several US Federal Reserve officials, the price of the currency pair EUR/USD faced a bearish weekly close as it declined in the Friday session to the support level of 1.0656 and closed the session around the level of 1.0685, and its gains at the beginning of the same week reached the resistance level of 1.0756, its highest level in two months.
- In the past week, we have seen successive statements from Federal Reserve officials, highlighting the extraordinary strength of the US economy and emphasizing that US interest rates may need to be raised further to bring inflation back under control.
- Meanwhile, it appeared to be a coordinated attempt by policymakers to guide market expectations.
US Dollar Still Strong
Consequently, this message was confirmed by Federal Reserve Chairman Jerome Powell, who stated that the bank “will not hesitate” to tighten monetary policy further if that becomes appropriate. In a similar context, he said that the Fed is not yet confident that it has achieved sufficient restrictive policy to overcome inflation.
In general, financial markets responded to these hawkish statements in the classic way - the US dollar strengthened as US bond yields rose, strengthening the interest rate advantage of the reserve currency. A disappointing 30-year debt auction, which saw very weak demand, is likely to amplify these moves. Therefore, the focus now turns to the US CPI inflation report this week, which will shape the interest rate path. In the bigger picture, the question facing traders as 2024 approaches is which global central banks will cut interest rates first and how deep these cuts will be.
This is a situation in which it is preferable to buy the US dollar, as the flexibility of the US economy indicates that the Federal Reserve may be among the last to launch an easing campaign.
Considering this environment, US stocks fell on Wall Street, as they felt the extent of rising returns. Jerome Powell's hawkish commentary snapped an eight-session winning streak for US stocks, with the S&P 500 index rejecting a downtrend line to close 0.8% lower and erasing all its gains for the week.
Furthermore, stock prices accelerated because of lower revenues earlier this month, even though earnings season hasn't been particularly impressive. Earnings growth certainly surprised the upside and was around 5% year over year, but this is happening in an environment where nominal GDP growth is 6%. This raises the question of how corporate earnings will perform once the US economy loses steam, making the consensus estimate of 12% earnings growth next year seem unrealistic.
And this week, Fundamental price pressures in the United States are expected to advance at a pace that supports concerns among Federal Reserve officials to signal clarity in their efforts to combat inflation. The Consumer Price Index excluding food and fuel, a measure that economists Favor as a better indicator of core US inflation, is expected to rise 0.3% for the third month. Compared to October last year, the core CPI is expected to rise by 4.1%. This would match the annual advance in September and break a six-month period of slow price growth.
Although significant progress has been made since hitting a multi-decade high a year ago, the pace of inflation remains high and above the Fed's target. Having paused on tightening monetary policy in successive meetings, leaving the benchmark interest rate at a 22-year high, policymakers are deliberately moving forward – and are not ruling out further rate increases.
EUR/USD Today Expectations and Analysis
According to the performance on the daily chart below, the price of the EUR/USD is still searching for strength factors to break the general downward trend, and as I mentioned before, this will not happen technically without moving towards the resistance levels of 1.0730 and 1.0800 as a first stage. At the same time, over that period, breaking the support 1.0640 will support the bears to return to the psychological support area 1.0500 again, and thus hopes for the recent rise will evaporate. Shortly, Quiet trading is expected today considering the lack of economic data and events, in addition to investors and markets awaiting US inflation numbers later this week.
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