The EUR/USD exchange rate entered the new week's trading in full swing with the help of the rise in the renminbi price. It will risk frustration in its recovery once it is in a forest close to the technical resistance on the charts without more of a major setback for the US dollar, which may be unlikely in the coming days. The recent rebound gains for the EUR/USD currency pair reached the resistance level of 1.0595, the highest for the currency pair in five months.
The European single currency's gains stalled on Friday when the US dollar and US bond yields benefited from the US non-farm payrolls report for November. This indicated that demand for employment and wages continued to move at rates likely to keep the Federal Reserve concerned about the inflation outlook in the states. United. The US dollar's rebound on Friday was only fleeting and unable to prevent the euro from further bidding on last week's gains on Monday when they appeared to be supported throughout the Asia-Pacific trading session by another rally in the RMB exchange rates.
Commenting on this, Kenneth Brooks, an analyst at Societe Generale, said, “The optimism that the lifting of Covid restrictions in China will enhance growth relative to price action cannot be overlooked, as the rise in stocks and commodities keeps the dollar in a state of decline after a very short but futile effort to raise the background on Friday.”
The easing of coronavirus containment measures in China is a boon for the renminbi and the currencies of economies exporting to China, such as the euro, although many analysts noted that energy prices will also come back on the radar again this week along with the risks of US economic data. For his part, Francesco Pessol, a forex analyst at ING Group, says: “Energy-related news should be more relevant to the euro this week, with lower temperatures in Europe and the Russian oil price cap coming into effect today.”
“Given the high sensitivity of EUR/USD to terms of trade in the eurozone (which is mainly driven by energy prices), more upside risk for energy commodities is offset by negative risk for the euro,” the analyst added. The analyst and his colleagues cite Monday's application of a "price cap" on Russian oil exported to other countries and the prospect of Russian retaliation driving up market prices as a potential downside to EUR/USD this week, which they warned could happen. It is likely to drop to 1.0450 or below.
Regarding the expected price of the euro dollar, the analyst says, “This week, some dollar stability may exhaust the strength of the EUR/USD rally around the 1.0600 / 1.0650 area and may lead to a more sustainable decline below 1.0450 / 1.0500. We still expect a decline until the end of the year.”
Overall, higher energy prices can affect the euro currencies of other energy-importing economies because they have a negative impact on terms of trade for export prices for import prices and can lead to more currencies being sold in the market to pay for imports. However, the euro will be affected by more than just energy prices this week as US economic data will be affected including the November release of the Institute for Supply Management (ISM) Purchasing Managers' Index (PMI) for services on Monday and Thursday to release the latest data on producer prices and inflation expectations is also important. The ISM Services PMI will provide insight into the state of the largest US economic sector last month and it is possible, if not somewhat likely, that a better-than-expected result could cause US bond yields and the dollar to try to recover maliciously.
EUR/USD Forecast:
- The general direction of the EUR/USD currency pair is bullish.
- We still see that these recent gains have moved the technical indicators towards overbought levels.
- It is better now to think about selling, and taking into account the lack of risk.
- The results of the upcoming US economic data are important for the future of the US Federal Reserve's policy.
- On the other hand, according to the performance on the daily chart below, breaking the support levels at 1.0455 and 1.0290, respectively, is important for the trend's view to turn bearish.
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