- The price of the euro against the dollar, EUR/USD, entered the trading of the new week amid bullish momentum.
- It breached the parity price with gains towards the 1.0035 level.
- The price of the euro dollar is stabilizing near its gains.
- There may be room to further its recovery in the coming days, with near three-month highs around 1.02 likely, if this week's US inflation data encourages the recent correction in the US dollar crosses to extend further.
Europe's single currency outperformed most of its major peers on Monday, as financial markets shrugged off the latest statements from China's public health officials, some of whom canceled earlier market speculation suggesting a possible change in Beijing's approach to the coronavirus in the near future. Speculation about possible changes in China's approach sent most currencies higher on Friday and appeared to be weighing on the dollar, although Monday's renminbi had no apparent impact on market sentiment and did not prevent the euro or risky assets from rallying.
This leaves much about the performance of the EUR to be determined by the market's response to Tuesday's congressional elections and the details of Thursday's October inflation report in the US, which is the highlight of the European data lull.
“Evidence that inflation remains uncomfortably high, combined with a hawkish Fed, should support the dollar rate and yield advantage across the board,” says Valentin Marinov, FX analyst at Credit Agricole CIB. "The midterm elections in the United States today are expected to lead to a stalemate in Congress. It would be a surprise if the Democrats could maintain the House and Senate, which would increase the risks of increased government spending, increased Treasury yields, and, in turn, a stronger dollar.”
Thursday's US inflation numbers will affect the outlook for US interest rates
The difference between whether the euro will end this week near three-month highs around 1.02 or fall back near last week's lows under 0.98 could be. The latter would be highly likely if Thursday's data indicated that inflation picked up again on an annual basis last month because that kind of outcome will force the market to think again about the extent to which the Fed may feel compelled to raise interest rates next year.
Economists are looking to US inflation to have eased slightly in October, but any sudden increase will have negative effects on the euro after Federal Reserve Chairman Jerome Powell said last week that previous data already justified a sharp increase in interest rates for next year more than previously expected. September forecasts suggested US interest rates could reach 4.5% by the end of the year and 4.75% in early 2023, but last week's press conference prompted financial markets to consider the idea that the final peak of the Fed funds rate is now likely to be somewhere. above the 5% level. This lifted the dollar and weighed on the euro at the time, and if any stronger-than-expected inflation outcome on Thursday is expected to encourage renewed speculation on this situation, it will pose a risk to the temporary recovery underway in the euro /American dollar.
Forecast of the euro against the US dollar today:
Returning to the technical analyses of the EUR/USD pair, we often stressed the importance of the stability of the currency pair above the parity price to move to the possibility of changing the bearish outlook that dominated the performance in the past period. According to the performance on the daily chart below, the general trend will turn to the upside if the bulls move towards the resistance levels are 1.0120 and 1.0200, respectively, because the breakout of the general trend is in progress and lacks momentum.
On the other hand, and over the same time period, the EUR/USD's move towards the 0.9890 support level will be important to confirm the bears controlling the trend.
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