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EUR/USD Analysis: Cautious Wait for US CPI Data

  • Ahead of the announcement of the important US inflation figures later today, Thursday, the EUR/USD price is stable around the 1.0840 level, amid attempts to rebound higher, but it lacks the momentum to achieve this.
  • Political tensions in the Eurozone continue to weaken investors’ appetite for the Euro. On the stock trading platforms front, European markets are slipping further as French political unrest continues.

EUR/USD Analysis Today - 11/07: Focus on US CPI Data (Chart)

According to the EUR/USD forecast today, European stock markets moved in the opposite direction to Asia and the United States as the repercussions of the suspended French parliament continue with no solution in sight. At the same time, the Euro managed to remain stable, unchanged against the British pound. Only the US dollar made a notable move, rising after comments from Federal Reserve Chairman Powell.

Powell did not address the weak economic data released last week, but instead delivered a generally cautious message on the economy and inflation, paving the way for a potential rate cut in September.

Overall, the last trading session was characterized by a significant difference in performance between stock markets in Europe and the rest of the world. Furthermore, the Asian session was bullish with the Nikkei up more than 1%, but the positivity deteriorated in Europe with the CAC 40 in France down almost 2%, the DAX down 1.4% and the FTSE down 0.7%. Completing the mix, the US session turned bullish again with gains of around 0.2% in the S&P 500 and Nasdaq.

This mixed performance reflects the French election, which continues to cause uncertainty and a great deal of anxiety. Moreover, the left-wing NFP party won the most seats but fell short of a majority and does not have much support in the other two parties. Macron’s centrist Together party is unlikely to form any kind of coalition with them due to some of the far-left policies and proposed fiscal spending that will worry markets. Clearly, there is no easy solution to the hung parliament and the fog surrounding French politics could persist for a long time. Furthermore, ING Bank outlines the most favourable scenario for the market, but even that is far from ideal and may not be possible.

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    In France, forming a coalition with a technocratic prime minister would likely require the exclusion of the more left-wing factions of the New Popular Front party, and it remains unclear whether this is possible in terms of parliamentary arithmetic. This would be the most favourable scenario for the market in the near term as it would prevent major spending measures, although medium-term fiscal consolidation would remain elusive, which would spell trouble for French bonds.

    While European stocks were broadly down, the euro remained steady and unchanged against the pound at 0.845. USD pairs are trading slightly higher, but currencies have been stabled this week. However, that could change, as the US CPI is due out today and Powell will deliver his semi-annual monetary policy report to the House Financial Services Committee in Washington, D.C.

    As is well known, Powell’s comments in Congress will be closely scrutinized. So far, they have not revealed anything new or surprising about the Fed’s plans. The prepared remarks did not mention last week’s weaker data, particularly the jobs report which showed the unemployment rate rose again to 4.1%. “The labor market appears to have fully rebalanced,” Powell added, saying the situation had “settled down considerably.” clearly, the Fed appeared to be somewhat pleased with the data and accepts that weaker readings are needed to keep inflation in check.

    There were subtle hints that the Fed is preparing to cut rates. Powell added that the US is "no longer a hot economy" and that "more good data would strengthen" the case for easing. In a nod to the weaker data and the dangers of keeping rates high for too long, he also said, "We are well aware that we now face two-sided risks." And tight policy "could unnecessarily weaken economic activity and employment." So, he will look at more than just inflation data to guide policy and noted that "In light of the progress made in bringing down inflation and calming the Labor market over the past two years, high inflation is not the only risk we face."

    EUR/USD Technical analysis and forecast:

    We expect the EUR/USD to remain on its current path until the reaction to the US inflation figures later today. Technically, the bulls will not be able to control the EUR/USD trend without moving towards the psychological resistance level of 1.1000 which in turn may move some technical indicators towards strong overbought levels. On the other hand, according to the performance on the daily chart, the support level of 1.0720 will remain a threat to the current upward rebound.

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    Mahmoud Abdallah
    About Mahmoud Abdallah
    Mahmoud has been working fulltime in the Foreign Exchange markets for 12 years. Offers his analysis, articles and recommendations at the most renewed Arabic websites specialized in the global financial markets, and his experience gained a lot of interest among Arab traders. Works on providing technical analysis, market news, free signals and more with follow up for at least 12 hours a day, and aims to simplify forex trading and the concept of trading for his audience.

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