EUR/USD Forecast: Euro to target new multi-month highs on soft US CPI
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UPGRADE- EUR/USD has gone into a consolidation phase after having registered modest gains on Wednesday.
- Hawkish ECB commentary helps the Euro outperform its rivals.
- Annual Core CPI in the US is forecast to declined to 5.7% from 6%.
EUR/USD has edged slightly lower in the early European morning on Thursday after having touched its highest level since late May at 1.0776 on Wednesday. The near-term technical outlook suggests that the pair is yet to correct its overbought conditions but investors could ignore technical signs and react to inflation data from the US.
On Wednesday, European Central Bank (ECB) Governing Council member Olli Rehn said they will still have to hike rates significantly in the next couple of meetings to reach restrictive levels and dampen inflation. On a similar note, ECB policymaker Pablo Hernandez de Cos argued that they need to continue to raise rates at a steady pace for protection against the risk of a persistent upward shift in inflation expectation. These comments helped the Euro preserve its strength against its rivals mid-week.
On Thursday, the US Bureau of Labor Statistics will release inflation data for December. The annual Core Consumer Price Index (CPI), which excludes volatile food and energy prices, is forecast to decline to 5.7% from 6% in December. On a monthly basis, the Core CPI is expected to rise by 0.3% following November's 0.2% increase.
In case the monthly core inflation figure comes in line or below the market consensus, the US Dollar is likely to face renewed selling pressure and allow EUR/USD to gather bullish momentum. The CME Group FedWatch Tool shows that markets are pricing in a 77% probability of a 25 basis points (bps) Fed rate hike in February. The market positioning suggests that there is more room on the downside for the US Dollar and the US T-bond yields in case investors are convinced of a 25 bps hike after inflation figures.
On the other hand, an unexpected increase in the monthly Core CPI should weigh heavily on Wall Street's main indexes and trigger a decisive recovery in the US Dollar, causing EUR/USD to fall sharply, at least with the initial reaction.
EUR/USD Technical Analysis
Following this week's action so far, static resistance seems to have formed at 1.0770. Above that level, 1.0800 (psychological level, static level) and 1.0840 (static level) could be seen as next bullish targets.
On the downside, 1.0730 (static level, 20-period Simple Moving Average (SMA)) aligns as initial support before 1.0700 (psychological level, static level) and 1.0650 (50-period SMA, 100-period SMA).
- EUR/USD has gone into a consolidation phase after having registered modest gains on Wednesday.
- Hawkish ECB commentary helps the Euro outperform its rivals.
- Annual Core CPI in the US is forecast to declined to 5.7% from 6%.
EUR/USD has edged slightly lower in the early European morning on Thursday after having touched its highest level since late May at 1.0776 on Wednesday. The near-term technical outlook suggests that the pair is yet to correct its overbought conditions but investors could ignore technical signs and react to inflation data from the US.
On Wednesday, European Central Bank (ECB) Governing Council member Olli Rehn said they will still have to hike rates significantly in the next couple of meetings to reach restrictive levels and dampen inflation. On a similar note, ECB policymaker Pablo Hernandez de Cos argued that they need to continue to raise rates at a steady pace for protection against the risk of a persistent upward shift in inflation expectation. These comments helped the Euro preserve its strength against its rivals mid-week.
On Thursday, the US Bureau of Labor Statistics will release inflation data for December. The annual Core Consumer Price Index (CPI), which excludes volatile food and energy prices, is forecast to decline to 5.7% from 6% in December. On a monthly basis, the Core CPI is expected to rise by 0.3% following November's 0.2% increase.
In case the monthly core inflation figure comes in line or below the market consensus, the US Dollar is likely to face renewed selling pressure and allow EUR/USD to gather bullish momentum. The CME Group FedWatch Tool shows that markets are pricing in a 77% probability of a 25 basis points (bps) Fed rate hike in February. The market positioning suggests that there is more room on the downside for the US Dollar and the US T-bond yields in case investors are convinced of a 25 bps hike after inflation figures.
On the other hand, an unexpected increase in the monthly Core CPI should weigh heavily on Wall Street's main indexes and trigger a decisive recovery in the US Dollar, causing EUR/USD to fall sharply, at least with the initial reaction.
EUR/USD Technical Analysis
Following this week's action so far, static resistance seems to have formed at 1.0770. Above that level, 1.0800 (psychological level, static level) and 1.0840 (static level) could be seen as next bullish targets.
On the downside, 1.0730 (static level, 20-period Simple Moving Average (SMA)) aligns as initial support before 1.0700 (psychological level, static level) and 1.0650 (50-period SMA, 100-period SMA).
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