Until the announcement of the most important US data today, the price of the euro currency pair against the US dollar EUR/USD succeeded in rebounding higher with gains towards the resistance level 1.0096. With the return of the dollar’s movement ahead of the US inflation figures, the Euro-dollar pair was exposed to selling operations. It is settling on its impact around the parity rate again and is liable to collapse well below it in the event that the US inflation figures come today stronger than expectations. This supports further tightening of the policy of the US Federal Reserve.
CPI Expected to Rise
US inflation is likely to moderate slightly in October data due on Thursday, and another above-expected reading could smash expectations for the Federal Reserve to a downward turn from sharp interest rate hikes. Economists expect the CPI as a core measure that excludes both food and refrigerated energy on an annual basis, but for rates still consistent with persistent and high inflation. The overall CPI is expected to rise from the previous month by the most since June.
This keeps the fifth consecutive increase of 75 basis points in US interest rates on the table for the Federal Reserve's meeting next month, although investors are leaning more about half a point. Also, higher rates have prompted the Fed to look for a higher peak rate next year than officials expected two months ago. Either way, the still-tight labor market underscores the potential for a relatively slow decline in the coming months to inflation, which was a key factor in this week's midterm elections. The overall annual inflation rate has exceeded expectations in six of the previous seven months.
For their part, Citigroup economists Veronica Clark and Andrew Hollenhurst said: “The upside surprise is likely to be driven by fundamental strength, and with the resilient jobs report it will increase the risk of policy rates needing to rise higher to suppress inflation.”
Overall, the Fed is doing its biggest rate hike since the 1980s to rein in demand across the economy, including employment. For his part, US Federal Reserve Chairman Jerome Powell said last week that in order to stamp out inflation, the central bank wants to see softer conditions in the labor market, but so far that has not yet happened in a "obvious" way. Friday's report showed that the US added more jobs than expected in October, and average hourly earnings accelerated from September. Although wage gains haven't kept pace with inflation, they still help give Americans the means to keep spending and increase labor costs for businesses, which in turn keeps upward pressure on prices.
EUR/USD forecast today:
- The stability of the euro price against the dollar will remain above the parity price, supporting the bulls' move up.
- As I mentioned before, the euro gains will remain weak and subject to selling again.
- As the tightening of monetary policy is in the interest of the US Federal Reserve and the stronger US economic performance from the Eurozone, which is facing the unknown due to the continuing Russian-Ukrainian war.
- Continuing the ongoing selling towards the support level 0.9880 will end the current bullish expectations and return the currency pair to its broader bearish track.
On the other hand, according to the performance over the same time period, moving towards the resistance levels at 1.0110 and 1.0200 will be important to change the general outlook for the pair to the upside. US inflation figures today will determine the fate.
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