As the week concludes, the EUR/USD pair stands near a two-month high of 1.0895, buoyed by a substantial rally following softer-than-expected US inflation data. The Consumer Price Index (CPI) for October revealed a flat monthly reading and a 3.2% YoY increase, triggering a plunge in the US Dollar.
Market Dynamics
Fed Rate Hike Speculation: The weaker CPI figures prompted a shift in sentiment, with market participants reducing bets on further Fed tightening. The result was a decline in the USD and an increase in expectations for rate cuts in H1 2024, despite cautionary statements from Fed officials.
Producer Price Index (PPI): The October PPI data, showing a 0.5% monthly contraction in wholesale prices, reinforced the view that inflationary pressures were easing, contributing to the bearish USD sentiment.
European Central Bank (ECB) Stance
No Rate Hikes: The ECB, in line with the Fed, refrained from raising rates in recent meetings. Despite President Christine Lagarde’s comments on inflation, money markets are pricing in a 100 basis points rate cut by December 2024.
Economic Growth Imbalances: The focus shifts to economic growth imbalances, with the US demonstrating resilience compared to the Eurozone’s setback. The EU’s Q3 GDP growth was a modest 0.1%, while the US recorded a robust 2.9%.
Technical Outlook
EUR/USD Weekly Chart: Technical analysis on the weekly chart indicates a bullish stance. The pair met buyers at 1.0824, defended by a mildly bearish 100-week Simple Moving Average (SMA), and comfortably trades above the 20-week SMA for the first time since early August.
Daily Chart: On the daily chart, EUR/USD remains bullish, supported by the 100-day and 200-day SMAs in the 1.0790-1.0800 range. The 20-day SMA is advancing below these longer SMAs, reinforcing the bullish outlook.
Fibonacci Retracement: The pair hovers around the 50% Fibonacci retracement of the yearly slump, with the 61.8% retracement at 1.0960 serving as a potential target.
Sentiment Poll
FXStreet Forecast Poll: The weekly forecast suggests the EUR/USD pair may experience a minor retracement, averaging at 1.0797. Traders, influenced by the US CPI data, remain neutral in the monthly perspective and bullish for the quarter, aiming for the 1.1000 area.
Overview Chart: Moving averages point upward, with a notable increase in bets above the 1.1000 threshold in the monthly and quarterly views. The potential range bottom has shifted higher, with limited expectations below 1.0700.
Conclusion
As the EUR/USD pair eyes the 1.1000 psychological level, the USD faces headwinds due to soft CPI data and reduced expectations of further Fed tightening. While sentiment trading currently favors the Euro, potential hurdles lie in energy price fluctuations and uncertainties in inflation trends. The upcoming week’s economic developments and key levels at 1.0790, 1.0750, and 1.0710 will be crucial in determining the pair’s trajectory.
Disclaimer: This analysis is based on historical data and does not guarantee future results. Trading involves risk, and individuals should carefully consider their financial situation before making any decisions.