- EURUSD closed the week close to 4%, spurred by a weak US dollar.
- A weaker-than-expected US CPI report and rising consumer inflation expectations pushed the US dollar lower.
- Double-digit inflation in Germany supported the euro.
- EURUSD price analysis: upward bias, may test 200-DMA in the short term.
The Euro (EUR) ended the week higher following the release of a soft inflation report in the US, according to the Department of Labor’s (DoL) October Consumer Price Index (CPI) report. As a result, expectations remain high for a slowdown in the Federal Reserve’s (Fed) tightening cycle following the CPI announcement, and the US dollar (USD) fell for his fourth week in a row. Therefore, the EUR continued to rise as EURUSD gained 1.42% and traded hands at 1.0352.
US CPI weighs heavily on US dollar
Wall Street ended the week with a solid gain. Core CPI was closely followed by the Federal Reserve, which eased to 6.3% year-over-year from September’s 6.6%, well below estimates, according to Thursday’s US inflation report. Meanwhile, his November consumer sentiment for the University of Michigan (UoM) fell to a four-month low from 59.5 to 54.7, as reported on Friday. Digging into UoM’s poll, one-year inflation expectations he climbed to 5.1%, jumping from 2.9% to 3% over the five- to 10-year period. “Continued uncertainty over inflation expectations suggests that such a consolidation is still possible in the future,” said Joan Hsu, head of the study.
Last Thursday’s CPI report overshadowed trader reactions to the UoM poll. EURUSD extended its rally on Friday after falling to a daily low of 1.0163 and rising sharply towards a daily high of 1.0364.
Traders expect the Fed to raise rates by 50 bps in December
Investors are starting to price in a less hawkish Fed. As shown by the CME FedWatch tool, money market futures are pricing in a 50 bps rate hike at around 85.6% odds, unchanged after the release of US inflation data.
German Consumer Price Index over 11%
On the Eurozone (EU) side, Germany’s CPI increased by 10.4% annually, in line with forecasts. Meanwhile, as expected, the German Consumer Price Index (HICP) rose 11.6% year-on-year in October, 0.7% higher than the September figure.
Separately, a tranche of European Central Bank (ECB) policymakers crossed the newswire, maintaining a hawkish stance and supporting the euro. ECB member Robert Holtzman said he would vote for a rate hike of 50 bps or 75 bps at its December meeting, while ECB vice-president Luis De Guindos warned that a technical recession could occur in the eurozone. high, adding that the market overreacted to US CPI.
Furthermore, ECB’s Pablo Hernández-Decos added that quantitative tightening (QT) could be announced in December, increasing the likelihood of a recession. Meanwhile, ECB member Mario Centeno said the euro was not experiencing an “existential crisis”.
EURUSD Price Prediction: Technical Outlook
Given the underlying background, EURUSD has moved higher towards the August 10th high of 1.0364. Nevertheless, it failed to achieve a higher daily close which could have exacerbated the move to the 200-day Exponential Moving Average (EMA) at 1.0438. The Relative Strength Index (RSI) in bullish territory is mostly overbought, but given the strong uptrend, the tech believes that the 80 level of his RSI is the most extreme. That said, the path of least resistance is upward.
Therefore, the first resistance for EURUSD is the August 10 high of 1.0364, followed by a psychological 1.0400. The break above exposes his 200-day EMA. Meanwhile, EURUSD’s first support is at the 1.0300 mark, followed by 1.0250 and the November 11th low of 1.0163.
