A few pips beneath the 1.1482 level, the EUR/USD pair suddenly awoke from its over-a-month dormancy. Due to US inflation, the US Dollar plummeted against all major rivals. The CPI rose 7% YoY, in December the greatest since 1982.
Institutions And Inflation
Until 2021, the dominant issue was price pressure as the globe recovered from the epidemic. Due to supply network bottlenecks and consumer behavior changes, inflation has reached multi-decade highs in developed economies, forcing global banks to tighten fiscal and monetary policy despite the slow economic recovery.
Uncertainty about how the US Federal Reserve would react caused equities to fall and federal bond rates to rise until last Wednesday. But not this time. Equities rose as bond rates disregarded the report, and the Dollar fell.
The data may not be enough to reverse the US Central Bank’s direction. By the end of 2021, the US will have opted to tighten its fiscal system.
The FOMC recently indicated three rate rises in 2022, while Powell & Co. hinted at a financial statement runoff later in the year. The Fed’s hawkishness was anticipated.
The Rebound Struggle Rages On
A week of alarming US statistics added to the Dollar’s decline. The producer price index rose 9.7% YoY, in December while the core reading rose 8.3%.
Also, initial jobless claims for the week ending January 7 were 230K higher than expected for the second week. The 4-week average value, which touched 210K in the same week, likewise showed an ascending trend.
On Friday, the government announced December retail sales, which fell by 1.9%, MoM. The Retail Sales Control Group fell -3.1%. Finally, the preliminary January Michigan Consumer Confidence Index was lower than expected at 68.8, down from 70.6.
Across the pond, European authorities remain cautious. People can believe that our dedication to price stability is steadfast, crucial for the strong anchoring of inflationary pressures and stability in the euro, said European Central Bank Head Christine Lagarde.
According to ECB Vice President Luis de Guindos, the European economy is becoming more accustomed to the coronavirus, but he expects inflation to remain below the target in 2023 and 2024.
What Data-Related Events Are Coming Up Next?
The EU’s macroeconomic calendar was sparse, delivering minimal data. Germany’s real GDP grew by 2.7%, compared to -4.6%, while the EU Trade Balance fell by €1.3 billion.
Germany and the EU will release their final December inflation estimates next week, expected to be 5.3% and 5%, respectively.
It will also release its January ZEW survey and December PPI, while the EU will release its preliminary January consumer confidence estimate.
Although the economic schedule includes weekly jobless and housing data, the US will not release significant statistics.
Technical Analysis Of The EUR/USD
EUR/USD CHART Source: Tradingview.com
The EUR/USD pair is trading at 1.1440, retaining most of its weekly advances. The pair traded around the 50% retrace of its 1.1691/1.1185 fall before giving up ground and trading around the 61.8% retracement.
The recent rebound from the 2021 trough was a long-overdue adjustment, as the duo has been moving down since late May when it peaked at 1.2266.
On the same chart, the 20-SMA is heading lower and crosses below the 200-SMA, at 1.1500. Meanwhile, technical indicators remain optimistic but pessimistic, indicating a halt in the long-term climb.
The daily chart reinforces the longer-term outlook, provided the pair stays below 1.1500. The 100-SMA is near the Fibonacci resistance level, strengthening the 1.1500 price zone.
Overbought chart patterns have lost their bullish power. The latest two daily candles have extended wicks upward, indicating purchasing weariness.
The bullish argument will be strengthened if the pair breaks the 1.1500 barrier. The following price resistance zone and the potential bullish goal are 1.1570/80, with a complete retracement towards 1.1691 expected once this is surpassed.
The bullish potential could fade if 1.1385, the 38.2% retracement of the last drop, is breached, allowing for a pullback towards 1.1250 and 1.1185.