• Soaring inflation and slowing economic growth have become global trends.
  • Central bankers are chasing inflation, incapable of accurately forecasting it.
  • EUR/USD trades at fresh 2021 lows without signs of an interim bottom coming.

When the US Federal Reserve announced its latest decision on monetary policy early in November,  Chair Jerome Powell  noted that inflation was the main theme, adding that current price pressures are “frustrating.” This week markets know that the US Consumer Price Index hit a 31-year high of 6.2% YoY in October amid soaring energy and food prices. Also, the latest data from the US Commerce Department showed that Gross Domestic Product grew at a modest annual rate of 2% in the third quarter of the year.

Massive pandemic-related stimulus, supply chain bottlenecks and labor shortages are all behind the economic disruption, which not only affects the US. The dynamic of higher inflation and slowing growth is a global trend. Just looking at Chinese figures, Q3 GDP came in at 4.9%, while inflation at factory levels jumped to its highest in 26 years.

King dollar runs on central banks’ imbalances

In such a scenario, the American dollar reached fresh 2021 highs against its European rival, with EUR/USD currently trading in the 1.1440 price zone. The greenback benefited from a sour market mood amid mounting speculation that the US Federal Reserve will have to hike rates at least twice in 2022. On the opposite side of the ring, the European Central Bank retains its conservative stance, pledging to maintain stimulus for as long as needed.

Another thing that most economies have in common is that their central banks’ representatives keep repeating that the ongoing spikes in inflation are likely to be “transitory.” But what is transitory? In its latest press conference, Fed’s Powell said that supply bottleneck effects were larger than the Fed anticipated and noted that high inflation would persist next year. Other policymakers refrained from drawing a time frame, although ECB President Christine Lagarde noted that it would be “very unlikely” they would decide to raise rates in 2022.

At this point, market participants are unaware about at which levels and after how many months policymakers will be worried about inflation. It seems that central bankers are behind the curve and incapable of projecting monetary policies sustainably in time. Risk aversion is the logical result, which in turn boosts demand for high-yielding assets such as the greenback, poised to extend its rally.

Data confirms investors’ pessimism

Meanwhile, macroeconomic data reflected global uncertainty. The German ZEW survey showed that the Economic Sentiment improved in November, although the assessment of the Current Situation plummeted. Inflation in the country was confirmed at 4.6% YoY in October, while the Wholesale Price Index jumped to 15.2% YoY. 

Finally, the US released the November University of Michigan  Consumer Sentiment Index, which plummeted to 66.8 from 71.7 in October, its lowest reading since November 2011. "Consumer sentiment fell in early November to its lowest level in a decade due to an escalating inflation rate and the growing belief among consumers that no effective policies have yet been developed to reduce the damage from surging inflation," said Richard Curtin, Surveys of Consumers chief economist.

For the upcoming week, the macroeconomic calendar includes the second release of the EU Gross Domestic Product for the third quarter, foreseen unchanged at 2.2%, and US October Retail Sales, both scheduled for Tuesday. The Union will release its final October inflation figures on Thursday when the US will publish the usual weekly unemployment claims figures.  

EUR/USD technical outlook

The EUR/USD pair trades at levels last seen in July 2020, and it is on track to extend its slump. The bearish potential strengthened, according to technical readings in the weekly chart. The pair has broken below its 200 SMA after over a month of struggling around it, accelerating south afterwards. The 20 SMA turned firmly south above the longer ones, reflecting the increased selling interest. At the same time, technical indicators hold within negative levels with uneven directional strength but still hint at another leg lower.

The daily chart suggests that a corrective advance may be around the corner. The Momentum indicator has turned marginally higher, while the RSI indicator has lost its bearish strength and stabilized around 34. Nevertheless, the bearish trend remains firmly in place, as all moving averages maintain their bearish slopes well above the current level.

The immediate support is the 1.1400 threshold, with a break below it, probably resulting in a test of the 1.1330 price zone. Another bearish extension exposes the 1.1260 level and long-term static support. On the other hand, a corrective advance could reach 1.1520 first and the 1.1610 area later. Sellers are likely to defend the latter.

EUR/USD sentiment poll

According to the FXStreet Forecast Poll, the pair is likely to extend its slump next week, as 60% of the polled experts are looking at lower levels. Speculative interest expects then a bounce, as 79% of the polled experts bet for an advance, although with the pair seen on average at 1.1531 in the monthly view. Finally, most experts see it sideways in the quarterly perspective, with the pair seen on average just above the 1.1500 level.

On the other hand, the Overview chart paints a bearish picture for the next three months. All moving averages head lower and stand and multi-month lows. The upper end of the possible targets has been downgraded in all the time frames under study, while a downward extension below 1.1200 is now on the cards.

Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers. The author will not be held responsible for information that is found at the end of links posted on this page.

If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.

FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.

The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.

Recommended Content

Recommended Content

Editors’ Picks

AUD/USD posts modest gains above 0.6600 amid weak UoM Consumer Sentiment data

AUD/USD posts modest gains above 0.6600 amid weak UoM Consumer Sentiment data

The AUD/USD pair snaps the two-day losing streak near 0.6615 amid the consolidation of the US Dollar in Monday’s early Asian session. Meanwhile, the US Dollar Index hovers around near 105.50 after retracing from its highest level since early May near 105.80.


EUR/USD: Central banks’ decisions will keep taking their toll

EUR/USD: Central banks’ decisions will keep taking their toll

The EUR/USD pair slid below the 1.0700 mark for the first time in over a month on Friday, as the US Dollar surged on the back of risk aversion. The dismal mood prevailed throughout the week, with a short-lived exception on Wednesday when softer-than-anticipated United States inflation brought a breath of fresh air.


Gold gains ground as traders dial up Fed rate cut bets for September

Gold gains ground as traders dial up Fed rate cut bets for September

Gold registered limited gains this week, supported by safe-haven flows and soft inflation data from the US. In the absence of high-impact macroeconomic data releases ahead, investors will pay close attention to technical developments in XAU/USD and comments from Federal Reserve officials. 

Gold News

Bitcoin active addresses hit lowest level in five years, BTC ranges below $67,000

Bitcoin active addresses hit lowest level in five years, BTC ranges below $67,000

Bitcoin, the largest asset by market capitalization, has noted a decline in its active address count per data from Glassnode. A decline in active addresses is typical at a time during a surge in Bitcoin transaction fees.

Read more

Week ahead: RBA, SNB and BoE next to decide, CPI and PMI data also on tap

Week ahead: RBA, SNB and BoE next to decide, CPI and PMI data also on tap

It will be another central-bank-heavy week with the RBA, SNB and BoE. Retail sales will be the highlight in the United States. Plenty of other data also on the way, including flash PMIs and UK CPI.

Read more